Australian 10-year bond yield slumps to over 1-week low after Fed cuts rates by 25bps

The Australian 10-year government bond yield slumped to over 1-week low after the Federal Reserve cut the federal funds rate by 25 basis points to 1.75-2.00 percent at its monetary policy meeting in the overnight session.

However, the country’s own employment report for the month of August, cheered market investors, which limited further rise in bond prices.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 7-1/2 basis points to 1.1061 percent, the yield on the long-term 30-year bond also slumped 7 basis points to 1.665 percent and the yield on short-term 2-year plummeted 7-1/2 basis points to 0.797 percent by 04:20GMT.

The FOMC cut its fed funds target rate by 25bps, the second time this year, to a range of 1.75-2.0 percent, as widely expected. For all intents and purposes, however, market reactions show that the move might well be termed as a hawkish cut, OCBC Treasury Research reported.

Going by the dot plot expectations of fed funds rate, the median value indicates no further cuts for the rest of this year and 2020. The market is not buying it, however, with fed funds futures still telegraphing expectations of one more cut this year, and at least one more next year, the report added.

For what it’s worth, Powell spoke of the room for “a more extensive sequence of cuts” if needed, but was non-committal about it, adding that it is not what the FOMC currently expects, OCBC further noted.

Meanwhile, the S&P/ASX 200 index edged tad 0.37 percent up to 6,703.50 by 04:25GMT.