Australian bonds continue to rally tracking upward pressure in U.S. Treasuries

Australian government bonds rallied on Thursday tracking firmness in the U.S. Treasuries as investors risk sentiments weighed down by renewed geopolitical caution towards US negotiations with North Korea and China.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 4-1/2 basis points to 2.801 percent, the yield on the long-term 30-year Note also dipped 4-1/2 basis points to 3.298 percent and the yield on short-term 2-year down 1 basis point to 2.025 percent by 03:50 GMT.

In the United States, Treasuries found upward pressure across the curve overnight, solidified following the release of May FOMC minutes which suggested that although the Fed is likely to resume tightening soon, it would also allow inflation to run above its 2 percent target for a temporary period (highlighting a symmetric target). This all amounted to a push lower in the 10-year Note yield back towards the 3.00 percent mark, alongside a milder decrease in the 2-year Note yield (though eyeing a move back towards 2.50 percent).

Aside from FOMC minutes, markets were largely limited to Markit US manufacturing/services PMI and new home sales (decreasing -1.5 percent to 662k). Markets now look ahead to a lighter flow of data on Thursday, highlighted by jobless claims and existing home sales, followed by a 7-year Note auction later in the session. As has been the case all week, markets will also continue focusing on trade negotiation developments between the US and China (though only so much should be made of daily chatter).

Renewed geopolitical uncertainty towards US negotiations with North Korea and China explain the Aussie’s bonds firmness. Trump also hosed down optimism over trade negotiations between the US and China, suggesting that “there is no deal,” casting doubt that both sides were on the cusp of an agreement to reduce the size of the US trade deficit with China.

Meanwhile, the S&P/ASX 200 index traded 0.07 percent higher at 6,026.5 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 122.83 (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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