Australian bonds stage sharp plunge on improved risk appetite ahead of RBA September meeting minutes

The Australian bonds staged a sharp rally at the open of the trading week Monday as investors moved away from safe-haven instruments on easing geopolitical tensions and as markets seem to have digested the last ballistic missile attack by North Korea. Also, investors are curiously awaiting the release of the Reserve Bank of Australia’s (RBA) September meeting minutes, due on September 19 by 01:30GMT.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 5-1/2 basis points to 2.80 percent, the yield on the 15-year note climbed nearly 6 basis points to 3.10 percent and the yield on short-term 2-year traded 4-1/2 basis points higher at 1.99 percent by 02:40GMT.

This week is all about global liquidity, with the FOMC widely expected to announce the unwinding of its balance sheet on Wednesday and the BoE now seemingly on the verge of a hike, potentially as soon as November.  The AUD remains well supported, and further upside momentum may be driven by the tone of the minutes tomorrow.

Lastly, iron ore prices fell sharply on Friday, compounding the falls from the previous day. A slew of slightly negative economic data has seen investors become increasingly cautious about the outlook for the bulk commodity. Chinese retail sales, industrial production, and fixed asset investment all showed signs of slowing. But this weakness comes despite record levels of steel production. August volumes hit 74.59 million tonnes, up 0.8 percent from July.

Meanwhile, the S&P/ASX 200 index rose 0.62 percent to 5,716.00 by 02:45 GMT, while at 02:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -64.19 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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