Australian 10-year bond yields hit 5-month high, next week’s Q3 CPI in focus

The Australian 10-year bond yields hit highest in five months Tuesday on rising market expectations that the Reserve bank of Australia will hold its official cash rate at record low of 1.5 percent in its upcoming monetary policy meeting.

Also, investors remained focus on the upcoming third quarter consumer inflation data in an attempt to estimate the RBA's most likely step.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 3-1/2 basis points to 2.358 percent, the yield on 15-year note jumped nearly 4 basis points to 2.722 percent and the yield on short-term 3-year climbed 1 basis point to 1.773 percent by 04:50 GMT.

The RBA board members in October meeting minutes noted that holding rates steady has been judged consistent with inflation and growth targets. The board said that third quarter CPI and other updated economic forecasts would be available at the next meeting. Also, the RBA is likely to consider housing, labour, economic outlook and effect of past cuts at November meeting.

Further mentioned that an appreciating in Australian dollar could complicate economic rebalancing, while housing risks had declined in past year, the sector needs to be watched closely. Q3 GDP growth looked to have run at a similar pace to Q2; rising commodity prices likely lifted terms of trade in Q3, while household consumption remained mixed, retail sales slow but consumers upbeat on finances. Lastly, labour data also mixed, an extent of underemployment pointed to spare capacity. Also, growth in China seemed to have stabilised but debt remains a source of concern.

Moreover, RBA Governor Lowe said that recent data suggest that the economy is adjusting reasonably well and he is watching employment and stability of financial system when setting rates and added that when judging if inflation is too low, there is need to consider the public interest.

Also said that inflation expectations have declined, but not at unprecedented lows; there is a need to guard against inflation expectations falling too far and Q3 CPI will be an important update. Added that labour market is mixed, jobless rate down but underemployment high and wages weak.

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.

Lastly, investors remained keen to focus on the series of upcoming economic data, highlighted by the unemployment rate, Q3 CPI and PPI data.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.34 percent higher at 5,390 by 04:50 GMT.