Australian bonds slump on upbeat economic data, higher Q1 GDP expectations

The Australian bonds slumped Tuesday following encouraging economic data. Also, fixed income securities were less lucrative in the wake of better expectations of Q1 GDP, which further weighed on possibilities for a June rate cut. The yield on the benchmark 10-year Treasury note which moves inversely to its price rose more than 3 basis points to 2.317 percent and  short-term 2-year bonds yield climbed more than 4 basis points to 1.704 percent by 0520 GMT.

Australia's first quarter net exports rose 1.10 percent of GDP, higher than the markets consensus of 0.7 percent, from flat 0.0 percent in the previous quarter. Similarly, current account balance improved to -20.8 billion (consensus was for -19.5 billion) from -22.6 billion, revised -21.1 billion in the last quarter. Moreover, Australia private sector credit for April rose 0.5 percent m/m, in the line of markets consensus of +0.5 percent m/m, from 0.4 percent in March.

In addition, Bloomberg in its latest poll of 27 economists concluded that they expect Q1 GDP to increase by +0.8 percent q/q, as compared to +0.6 percent in the last quarter of 2015. On annual basis, it is likely to gain +2.8 percent y/y, from +2.7 percent in the previous quarter. Meanwhile, Australian Q1 GDP is due to be released at 01:30 GMT tomorrow 1 June. The Reserve Bank of Australia (RBA) holds its monthly policy review on June 7 and the market is giving an only 6 percent chance of a move to a record low of 1.5 percent.

On Friday, the Fed Chair Yellen on Friday said if economic gains continue and if the labour market continues to improve that it is appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate. Although lacking a time factor, this continues to point to increased support for a summer rate hike from the FOMC.

Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.27 pct, or 14.5 points, at 5,403.5 by 0520 GMT.