Australian bonds slump on improved US employment report

The Australian government bonds slumped Monday after data showed that the United Sates non-farm payroll increased higher than expected in July, reinvigorating expectations of Fed tightening this year.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 6-1/2 basis points to 1.955 percent and the yield on short-term 2-year note jumped 1 basis point to 1.495 percent by 05:00 GMT.

The July US Labor Department employment situation report revealed a considerable +255k increase in non-farm payrolls, which comes well above market expectations for a +180k increase, as compared to the revised +292k result that occurred in June (previous was  +287k). This comes alongside no change in the unemployment rate at 4.9 percent, above expectations for a 4.8 percent result.

We expect that it is likely to be difficult for the investors to find any dovishness in this report, keeping alive September 21 Fed hike expectations (Bloomberg’s implied probability is at 26 percent).

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.14 percent higher to 5,492.5 by 05:00 GMT.