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Australian bond yields surge following weakness in U.S. Treasuries; RBA February meeting minutes in focus

Australian bonds slumped on the last trading day of the week Friday following weakness in the U.S. Treasuries, which hovers around 4-year high. Also, investors remain optimistic ahead of the Reserve Bank of Australia (RBA) February meeting minutes scheduled to be released next week.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1 basis point to 2.904 percent, the yield on the long-term 20-year note also surged nearly 1 basis point to 3.313 percent and the yield on short-term 3-year up 1 basis point to 2.143 percent by 03:20 GMT.

On Thursday, Australia posted a 16K gain in employment in January 2018 which records the longest streak of employment gains with a 16th consecutive positive print. At the same time, the country’s unemployment rate fell slightly in January to 5.5 percent from 5.6 percent in December, revised up from 5.5 percent. This came with a decline in the participation rate to 65.6 percent from 65.7 percent.

In the United States, Treasuries saw a mixed performance overnight as short-end weakness was contrasted by upward pressure further out the curve, partly undoing some of the decline registered in the wake of the January CPI report on Wednesday.

On balance, we continue to anticipate gradually higher yields in the weeks to come, though some sideways drift is likely to be seen in the interim, given little in the way of significant market data to weigh on Treasuries in the near-term. Markets now look ahead to a lighter flow of data to finish off the week on Friday, highlighted by housing starts/building permits, import prices and University of Michigan consumer sentiment, none of which is likely to add to or detract from recent momentum as markets build some concern for inflation prospects in the months to come.

Meanwhile, the S&P/ASX 200 index traded 0.20 percent lower at 5,868.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 40.86 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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