Australian bonds slump as retail sales rise for fifth straight month, weaker bounce limits yield growth

The Australian government bonds slumped Thursday after data showed that the country’s retail sales increased for five consecutive months in June. However, gains were much weaker than expected, which limited the growth in bond yields.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 2 basis points to 1.968 percent and the yield on short-term 3-year note climbed 1/2 basis point to 1.456 percent by 05:10 GMT.

Australia’s June retail sales rose 0.1 percent m/m, which registered the slowest growth since Q4 of 2014, against market consensus of 0.3 percent m/m, as compared to 0.2 percent in May. On quarterly basis, it jumped 0.4 percent q/q in the second quarter, market consensus was for 0.5 percent q/q, from 0.5 percent in the first quarter of 2016.

Moreover, the central bank has released its commodity price index for July, which showed a stronger growth of 4.1 percent in special drawing rights (SDR) terms. Also, it increased 1.1 percent in Australian dollar terms. The increase was led by the prices of the bulk commodities, LNG and gold. Both the base metals and rural sub-indices increased in the month. In Australian dollar terms, the index rose by 1.1 percent in July.

Over the past year, the index has fallen by 2.0 per cent in SDR terms and by 3.7 per cent in Australian dollar terms. Consistent with previous releases, preliminary estimates for iron ore, coking coal, thermal coal and LNG export prices are being used for the most recent months, based on market information. Using spot prices for the bulk commodities, the index rose by 8.3 per cent in July in SDR terms, to be 3.5 percent higher over the past year, the RBA reported in its press release.

On Tuesday, the Reserve Bank of Australia (RBA) lowered its official cash rate (OCR) by 25 basis points to new record low of 1.50 percent, after having cut it by 0.25 percent (25 basis points) in May to 1.75 percent to spark historically weak inflation. This decision was made by the central bank to desperately try to recover the dwindling consumer inflation, which is below the Reserve Bank of Australia’s (RBA) target band of 2-3 percent. Also, strengthening Australian dollar pushed the central bank of a 25 basis points cut.

Lastly, investors will remain keen to focus on the upcoming quarterly Statement of Monetary Policy on Friday, which will update economic growth and inflation forecast for the country.

Meanwhile, the Australia's benchmark S&P/ASX 200 index traded down 0.15 percent or 8 points to 5,437.5 at 05:20 GMT.