Australian bonds slump after U.S. 10-Treasury yield hit 7-month high on hopes of hawkish Fed pick

Australian government bonds slumped Thursday after U.S. Treasury yield hit 7-month high of 2.475 percent. Bond prices are tracking a solid development in the U.S. counterpart after hawkish bets cropped up among market participants over the plausible appointment of next Federal Reserve Chair after serving Chair Janet Yellen’s term expires in early February 2018.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1-1/2 basis points to 2.789 percent, the yield on the long-term 30-year note also jumped 1-1/2 basis points to 3.550 percent and the yield on short-term 2-year traded nearly 1/2 basis point higher at 1.89 percent by 02:30 GMT.

Overnight, The U.S. 10-year Treasury yield hit a 7-month high Wednesday as markets prepare to experience a more hawkish Federal Reserve Chair to replace Janet Yellen after she retires from the position in early February. Also, investors are awaiting the 5-year auction scheduled to be held later today by 17:00GMT.

This followed a surge in the fortunes of Stanford University’s John Taylor, known for advocating a rules-based approach to monetary policy, as a candidate either for the role of Fed chair when Janet Yellen’s term expires early next year, or vice-chair, a post which is also vacant after the retirement of Stanley Fischer this month.

The PredictIt betting market showed that Mr. Taylor’s chances of winning the top job rose from 17 to 31 percent during the day. Jerome Powell, a current Fed board member regarded as a centrist, remained the favorite with a 53 percent chance, FT reported.

Meanwhile, the S&P/ASX 200 index traded flat at 5,878 by 02:30 GMT, while at 02:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -63.01 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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