Australia 10-year bond yield rises on better-than-expected Q4 inflation data; Fed policy decision in focus

Australian government bonds slumped across the curve during Asian trading session Wednesday following better-than-expected Q4 inflation data, where the Q4 core inflation came in in line with RBA’s expectations, while headline inflation was a little stronger than market consensus.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 1basis point to 2.253 percent, the yield on the long-term 30-year bond also jumped 1-1/2 basis points to 2.771 percent and the yield on short-term 2-year also traded 4 basis points higher at 1.873 percent by 03:40 GMT.

According to ANZ report, Q4 CPI showed a slight improvement in headline inflation which rose 0.5 percent q/q, although in annual terms it slowed to 1.8 percent (from 1.9 percent in Q3). The largest contributions came from the 9.4 percent increase in tobacco prices and a 6.2 percent lift in domestic airfares. Offsetting this slightly was a 2.5 percent fall in petrol prices.

Core inflation was steady compared to the previous quarter, with both the trimmed mean and weighted median rising by 0.4 percent. This left the annual growth rate (the average of the two measures) steady at 1.8 percent. CPI ex-volatiles (also looked at by the RBA) rose to 0.6 percent q/q, the best result since 2015.

Overnight, the U.S. government bond yields fell ahead of the Federal Reserve policy decision on Wednesday.  The Fed is widely expected to leave interest rates on hold, although investors are eagerly anticipating Chairman Powell’s post-FOMC press conference.

“Investors looked ahead to the Federal Reserve’s FOMC meeting tonight. The U.S. stockmarket was mixed and  bond yields fell, while the U.S. dollar index gained. Voting by UK lawmakers on Brexit amendments late in the session weighed on Sterling. The yield on the 10-year U.S. government bond fell 4 basis points to 2.71 percent. The yield on the 2-year U.S. government bond fell 3 basis points to 2.56 percent,” noted St.George Bank.

Meanwhile, the S&P/ASX 200 index traded 0.48 percent lower at 5,811.50 by 04:00 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 140.44 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex