Australian bonds jump as U.S.-China trade war worsens; investors eye April employment report

Australian government bonds jumped during Asian session of the first trading day of the week Monday after the trade war between the United States and China worsened, with the former raising the tariffs on Chinese imports, with burgeoning threat of a further imposition if no agreement is reached within a month.

Further to that, the country’s employment report for the month of April, due by end of this week, shall be eyed for extra direction in the debt market.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, slumped 2 basis points to 1.719 percent, the yield on the long-term 30-year bond slipped 1-1/2 basis points to 2.340 percent and the yield on short-term 2-year also traded 1-1/2 basis points lower at 1.314 percent by 03:40GMT.

The US proceeded to raise tariffs on China to 25 percent on Friday and while indications are that trade talks will continue, there is the threat of 25 percent tariffs on the next USD325 billion of Chinese imports within a month if a deal is not brokered, OCBC Treasury Research reported.

Market reaction on Friday, while negative was relatively muted on the assumption that a deal of sorts will be finally reached given that both sides have too much to lose, especially since Trump has US elections to face. President Trump had tweeted that the US was “right where we want to be”, talks were “constructive” and will continue, but it would be wise for China to “act now”. 

China’s Liu He had revealed that the main points of contention were it wanted existing tariffs to be removed, US targets for Chinese purchases should be aligned with real demand, and the text of a deal should be balanced to ensure the dignity of both sides, the report added.

Meanwhile, the S&P/ASX 200 index traded 0.67 percent lower at 6,285.5 by 03:45GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 3.80 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex