Australian bonds trade lower ahead of RBA Governor Lowe’s speech; 10-year yield at 5-month high

The Australian government bonds traded lower Monday ahead of the Reserve Bank of Australia Governor Philip Lowe’s speech. Also, the 10-year bond yields rose to 5-month high on rising market expectations that the central bank will hold its official cash rate at record low of 1.5 percent in its upcoming monetary policy meeting.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 4-1/2 basis points to 2.319 percent, the yield on 15-year note jumped 5 basis points to 2.682 percent and the yield on short-term 3-year climbed 1 basis point to 1.761 percent by 04:30 GMT.

According to latest Reuters poll on the Australian economy, forecasts for inflation was at 1.2 percent for 2016, 2.1 percent in 2017 and 2.4 percent in 2018. Similarly, forecasts for GDP was at 2.9 percent for 2016 (also a poll in July showed the same result), 2.8 percent for 2017 and 2.9 percent in 2018.

Last week, the Reserve Bank of Australia in its financial stability report mentioned that banking system is performing well and is resilient to possible shocks. It noted that rising bad debt levels in mining areas and the New Zealand dairy sector could affect country’s exports. Risks around large supply increase of inner-city apartments are coming to the fore and those from apartment oversupply are the greatest in Brisbane and Melbourne.

Further, it mentioned that risks are hard to judge due to paucity of financial data on unlisted, offshore property developers and banks have tightened lending standards on apartment projects, buyers which could limit oversupply. Furthermore, it said that lending by Asian banks for Australian commercial property continues to grow rapidly and household financial risks have lessened and lending standards have strengthened. Also, housing price growth has slowed overall, picked up a little in Sydney and Melbourne. Says share of high LVR lending has fallen, lowest in almost a decade. Meanwhile, businesses overall remain in good financial health, but mining sector remains under pressure.

Lastly, investors remained keen to focus on the series of upcoming economic data/events, highlighted by RBA October meeting minutes, unemployment rate, CPI and PPI data.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.54 percent lower at 5,377 by 04:40 GMT.