Australian bonds slump on profit booking; focus on BoJ's policy decision

Australian government bonds slumped on Tuesday as investors cashed in profits ahead of major central banks’ monetary policy decisions scheduled this week.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, rose 4-1/2 basis points to 2.700 percent, the yield on the long-term 30-year Note also jumped 4 basis points to 3.173 percent and the yield on short-term 2-year traded 2 basis points higher at 2.042 percent by 03:20 GMT.

After the BoJ policy decision today, markets will watch the Bank of England and the Federal Reserve's monetary policy decision scheduled for later this week.

The OCBC Bank in its daily Treasury outlook noted we do not anticipate any pre-emptive flexibility in its policy stance, but any hints of a potential shift in any of its policy options (eg. 10-year JGB yield target from the current zero percent, an “operation twist” of sorts for its yield curve control policy, ETF and/or corporate bond purchases) will likely evoke a strong market reaction, particularly for the JGB market. Essentially any global reallocation to JGBs may reassert the steepening bias for other DM yield curves. BoJ is also likely to shave its inflation forecast which currently appears overly optimistic.

In the United States, Treasuries rose 2.971 percent ahead of the FOMC's policy decision scheduled for Wednesday.

“US 10-year bond yields rose by 2 basis points and 2-year bond yields were a touch lower at 2.66 percent. Front-end Fed fund futures ticked up marginally. However, European yields were much higher overnight. Ten-year Bund yields rose 4bps and the yield on UK Gilts rose 6bps, as markets adjusted ahead of the Bank of Japan’s policy meeting,” noted St.George Bank in its morning report.

On the other hand, it is worth noting that the RBA next meeting is scheduled for August 7, where the board members are expected to keep its interest rate unchanged at 1.50 percent.

Meanwhile, the S&P/ASX 200 index traded 0.18 percent higher at 6,232.5 by 03:20 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 16.77 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex