Australian bonds slump on hawkish comments from Federal Reserve officials

The Australian government bonds slumped Monday, following hawkish remarks made by the Federal Reserve officials, which boosted chances of an interest rate hike in 2016.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 4 basis points to 1.972 percent and the yield on short-term 2-year also jumped 4 basis points to 1.467 percent by 05:10 GMT.

Federal Reserve Vice Chairman Stanley Fischer stroke a hawkish tone during a speech in Colorado, saying that, looking ahead, he expects GDP growth to pick up in the coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes.

Moreover, Fischer signalled that this year interest rate hike is still on the table and added that the US economy is very near to meeting the Federal Reserve’s goals.

Last week, the US Fed’s William Dudley (voter in 2016) said that his overall views have not changed much and that he is looking for stronger second half of 2016 growth than was seen to start the year.

In addition, Dudley reiterated that the US economy is edging closer towards the point where it will be appropriate to raise interest rates further, noting that September was possible. He also added that the Fed Funds futures were underpricing the likelihood of policy tightening.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.24 percent lower to 5,481.5 by 05:20 GMT.