Australian bonds slump ahead of RBA policy decision, January retail sales

The Australian bonds slumped on the last day of the week Friday as investors remain cautious ahead of the Reserve Bank of Australia’s (RBA) monetary policy decision scheduled to be held on March 7. Also, investors will be looking forward to the release of January retail sales, due on March 6.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped over 2-1/2 basis points to 2.82 percent, the yield on 15-year note also surged nearly 3 basis points to 3.25 percent while the yield on short-term 2-year traded nearly 2 basis points higher at 1.84 percent by 03:50 GMT.

While there was much to like on the activity side of the national accounts, nominal unit labor costs fell 1.4 percent in the quarter and 0.4 percent over the past year. The persistent weakness in labor costs implies an absence of domestic cost pressures.

"There is little sign of this dynamic changing anytime soon, in our view. Thus, while we think the RBA is most likely on hold we see the prospects of a rate cut in the next 12 months as much greater than those of a rate hike," ANZ Research commented in its latest research report.

After posting a substantial gain in December, the Australian trade surplus narrowed sharply in January, down to AUD1.3 billion from AUD3.3 billion the previous month. The moderation in the trade balance was driven by both a fall in exports and a pickup in the value of imports.

Meanwhile, the ASX 200 index traded 0.53 percent down at 5,707.50 at 03:50GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -73.83 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex