Australia 10-year bond yield hits over 5-week high tracking sell-off in U.S. Treasuries; Q2 CPI data eyed

Australian government bonds slumped on Tuesday tracking board weakness in the U.S. Treasuries as investors remained optimistic about world’s largest economy and Federal Reserve interest rate hikes.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, rose 4-1/2 basis points to 2.724 percent, the yield on the long-term 30-year Note also jumped 4-1/2 basis points to 3.201 percent and the yield on short-term 2-year up 1 basis point to 2.075 percent by 03:00 GMT.

Now markets await Wednesday’s Australia Q2 inflation data, which is expected to rise 0.5 percent q/q and 2.2 percent y/y. If this realized, the inflation data will breach the lower bound of the RBA inflation target of 2-3 percent. This will further support the Reserve Bank of Australia (RBA) view of remaining optimistic on interest rate hike. At the same time, a higher-than-expected number will boost the Australian bond yields and the Australian dollar.

The RBA next meeting is scheduled for August 7, where the board members are expected to keep its interest rate unchanged at 1.50 percent. However, if inflation data continues to improve over the coming months, interest rate hike is not far off.

In the United States, Treasuries remained under pressure as investors moved to riskier assets. The U.S. 10-year Treasury yield rose to 2.954 percent – highest since June 14. Markets would now mainly focus on the Q2 GDP growth scheduled to be released on Friday.

“The 10-year UST bonds sold off to push the yield up to 2.96 percent (highest in five weeks) on expectations that the FOMC will push on with a rate hike in September notwithstanding Trump’s criticism,” said OCBC in its Daily Treasury Outlook.

Meanwhile, the S&P/ASX 200 index traded 0.42 percent higher at 6,210.5 by 03:35GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -99.50 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex