Australian bond yields plunge following fears of global economic slowdown, U.S. Treasury yield inversion risk

Australian government bond yields plunged during Asian trading session Monday as investors fretted about the risks of a global economic slowdown amid a partly inversion of the United States Treasury yield, seen at the end of last trading week.

The latest downfall in long-term yields led to an inversion of part of the Treasury yield, with the 3-month rate topping the benchmark 10-year yield, an important recession indicator.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 6-1/2 basis points to 1.781 percent, the yield on the long-term 30-year bond also slumped 6-1/2 basis points to 2.424 percent and the yield on short-term 2-year traded nearly 5 basis points lower at 1.452 percent by 03:50GMT.

Global risk appetite retreated on Friday, with market concerns about a potential US recession re-emerging after the 3-month to 10-year UST yield curve inverted for the first time since 2007, notwithstanding the Fed’s dovish signals earlier last week.

The S&P500 slumped 1.9 percent on Friday, whilst the 10-year UST bond yield fell 10bps to 2.44 percent (lowest since January 2018) and the fed funds futures market is currently pricing in a 69 percent probability of a rate cut before January 2020, OCBC Treasury Research reported.

Lastly, the pivot at central banks towards more dovish guidance, as inflation struggles to meet target and manufacturing falters, is behind the powerful rally. Safe-haven elements are also evident as tremors have run through emerging markets, with the Turkish lira falling in excess of 5 percent vs USD and the US starting to make noises that it is unhappy with the absence of progress in the EU-US trade talks. Brexit is also adding to uncertainty and at the margin is supporting fixed income, ANZ Research reported

Meanwhile, the S&P/ASX 200 index traded -0.38 percent lower at 6,106.50 by 04:00GMT, and at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -28.60 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex