Australian bonds gain as trade war fear heats up

Australian government bonds gained on first trading day of the week Monday after the latest signs of trade hostility between China and the US.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 2 basis points to 2.633 percent, the yield on the long-term 30-year Note dipped 3-1/2 basis points to 3.123 percent and the yield on short-term 2-year down 1/2 basis point to 2.034 percent by 03:50 GMT.

Bonds markets witnessed heavy buying after the world’s second-largest economy, China announced that it would retaliate against new US tariffs on USD50 billion in Chinese imports that will go into effect within days, taking the world’s two largest economies to the brink of a full-scale trade war. U.S. President Donald Trump threatened last week to impose a 10 percent tariff on $200 billion of Chinese goods, escalating a tit-for-tat trade war with Beijing.

In the United States, Treasuries continued to trade rangebound to finish off the week on Friday, during a relatively quiet session light on economic data of great significance. With respect to data, markets were largely limited to preliminary Markit US manufacturing and services PMI releases (with the former decreasing to 54.6 and the latter improving to 56.5, both of which hold near recent averages and suggested continued support overall).

On the daily trade war front, US President Trump tweeted a threat of imposing a 20 percent tariff on cars imported from the EU unless tariffs on US goods (and other barriers) are removed. Markets now await a greater flow of data in the week ahead, highlighted by durable goods orders on Wednesday, final 1Q18 GDP on Thursday and personal income/spending data on Friday (providing an updated core PCE reading). Additionally, markets receive 2-year Note, 5-year Note and 7-year Note auctions on Tuesday, Wednesday and Thursday, respectively.

Meanwhile, the S&P/ASX 200 index traded 0.40 percent lower at 6,158.5 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -9.00 (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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