Australian bonds slump following weakness in U.S. Treasuries; hopes of FOMC rate hike reign

Australian bonds slumped on Wednesday following weakness in the U.S. Treasuries as hopes of interest rate hike reign market sentiments.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1 basis point to 2.715 percent, the yield on the long-term 30-year note traded 2 basis points higher at 3.306 percent and the yield on short-term 2-year climbed 3 basis points to 2.035 percent by 02:30 GMT.

In the United States, Treasuries pushed lower across the curve during a relatively quiet session light on data of great significance, alongside a rebound seen in equities following the pullback is seen to open the week. Markets are now largely geared up for the FOMC statement on Wednesday, accompanied by updated economic projections and followed by a press conference with Fed Chair Jerome Powell.

This meeting fosters heightened interest on a number of fronts, particularly the change in leadership in the form of Fed Chair Powell, coupled with an attempt to gauge and change in outlook following the previous passage of tax cuts, expected to impact consumer and business spending earlier in the year.

Although fiscal stimulus is not a new topic, the previous statement was largely viewed as a handoff from outgoing Chair Janet Yellen, nothing that was likely to fully reflect any change in tone from the FOMC as it looks towards evolving issues in 2018.

At present, we continue to expect roughly 75 basis points worth of tightening over the course of the year (with the distinct possibility of another 25 basis points hike should inflation pressures begin to emerge). Aside from the statement, markets also look ahead to current account and existing home sales data earlier in the session.

On Tuesday, the Reserve Bank of Australia (RBA) in its March meeting minutes reiterate that rising Australian dollar would slow economy pick up, inflation and low rates playing a part in lowering unemployment, lifting inflation. The central bank repeats further progress on policy goals likely to be only gradual and GDP growth expected to exceed potential growth in 2018, CPI inflation expected to rise to a little above 2 percent this year.

Meanwhile, the S&P/ASX 200 index traded 0.05 percent higher at 5,935.5 by 02:40 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -147.62 (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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