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Australian government bonds slumped across the curve during Asian session on Thursday as investors took the U.S. mid-term elections results positively, providing some relief to equity markets.
The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 4-1/2 basis points to 2.768 percent, the yield on the long-term 30-year bond also jumped 3 basis points to 3.286 percent and the yield on short-term 2-year up 3-1/2 basis points to 2.087 percent by 04:00GMT.
“The U.S. Treasury yields were mixed. While stronger risk appetite might have weighed on demand, a divided Congress was viewed as being less conducive to additional fiscal stimulus. The U.S. 10-year yields spiked temporarily to 3.25 percent, but then gave up those gains to end little changed at 3.23 percent. Meanwhile, the U.S. 2-year yields were 3 basis points higher,” noted economists at St.George Bank
“Markets are pricing in a near 80 percent probability of a Fed rate hike by December.”
Financial markets took the results of the U.S. mid-term elections positively, although the result of Democrats winning control of the House and Republicans keeping the Senate was widely expected. The U.S. share markets surged. Other asset classes were more mixed. The Australian dollar continued to rebound.
On the other hand, market focus will now likely turn to the upcoming FOMC policy decision where consensus is for no change to the Fed Funds rate, but a potential tweak to the IOER may materialise. There is no refresh of the dots plot or a Powell press conference, so market players may have to look elsewhere for other market catalysts.
On Friday, investors shall look ahead to the RBA’s monetary policy statement (SoMP) to gauge future policy direction from the central bank.
Meanwhile, the S&P/ASX 200 index traded 0.12% higher at 5,911 by 04:10 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 162.96 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
