Australian bonds gain after PM Turnbull faces another leadership challenge

Australian bonds gained across the curve on Thursday after Prime Minister Malcolm Turnbull’s three cabinet members resigned and supported Peter Dutton for the next prime minister and Liberal leader.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 1-1/2 basis points to 2.526 percent, the yield on the long-term 30-year bond also dipped 1-1/2 basis points to 3.031 percent and the yield on short-term 2-year slumped 2-1/2 basis points to 1.984 percent by 03:20GMT.

Australia’s political manoeuvrings pushed investors towards safe-haven buying as Prime Minister Turnbull again fell into leadership challenge, despite winning no-confidence motion by seven votes on Tuesday. Three key cabinet members resigned on Thursday and supported rival Dutton. Following this, the AUD/USD plunged 0.84 percent to a 1-week low of 0.7288.

“With no major surprises from the Fed last night, bond yields were little changed. Yields on 2-year notes were steady at 2.59 percent. US 10-year bond yields nudged slightly lower, dropping 1 basis point to 2.82 percent. Financial markets are pricing in a 92 percent probability of a 25 basis-point rate hike in September, moving up slightly after the minutes,” noted economists at Scotiabank.

The OCBC Bank noted that key to focus for today’s economic data calendar are US’ new home sales and initial jobless claims, Eurozone’s consumer confidence, manufacturing/services/composite PMIs, and S’pore’s July CPI. Speakers include RBA’s Bouton and Bundesbank’s Weidmann. Market players are awaiting FOMC chair Powell’s speech at the Jackson Hole symposium tomorrow.

Meanwhile, the S&P/ASX 200 index traded 0.42 percent lower at 6,225.5 by 03:00GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -147.38 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex