The Australian government bonds slumped on Monday as investors anticipate higher second quarter consumer inflation amid rising possibilities that the Reserve Bank of Australia will hold its key interest rate at its upcoming policy meeting.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose more than 3 basis points to 1.923 percent and the yield on short-term 2-year note also jumped more than 3 basis points to 1.544 percent by 05:50 GMT.
The Australian Bureau of Statistics is scheduled to release its consumer inflation index (CPI) for the second quarter on Wednesday at 01:30 GMT. The inflation reading is expected to increase 0.7 percent q/q in the second quarter of 2016, as compared to down 0.2 percent in the previous quarter. Similarly, the CPI is expected to increase 1.4 percent y/y, from prior 1.3 percent y/y.
This positive reading will be sufficient for the central bank to hold on rates in August. On the other hand, we also foresee that if the CPI print comes below 0.4 percent q/q, it will increase the central bank’s space for twenty basis points rate cut in the policy meeting scheduled in August.
Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading up 0.37 percent, or 20 points, at 5,491.5 by 05:40 GMT.
