Australian bonds mixed in subdued trade; 10-year yield hovers near all-time low

The Australian government bonds traded mixed in subdued Asian session on Friday as global risk appetite attempted to stabilize amid better-than-expected U.S. retail sales data. However, comments from President Donald Trump and China kept traders on their toes over trade war tensions.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 1 basis point to 0.877 percent, the yield on the long-term 30-year bond also dipped 1 basis point to 1.437 percent while the yield on short-term 2-year traded nearly flat at 0.731 percent by 04:40GMT.

Australian 3-year government bond yields ranged sideways between 0.63% and 0.68%. The Australian 10-year yield fell 9 basis points to a fresh record low of 0.83%. Interest-rate markets are pricing 6 basis points of easing at the 3 September RBA meeting, and a terminal rate of 0.36%, reported St.George Bank.

Interest-rate markets are pricing 34 basis points of easing at the 19 September Federal Reserve meeting and a terminal rate of 0.97 percent (Federal funds rate currently 2.13 percent), St.George Bank added.

“The U.S. 2-10-year yield curve closed at 4 basis points overnight, but in the previous session had inverted. This inversion is traditionally a precursor to recessions. Addressing these concerns, St. Louis Federal Reserve President James Bullard said the inversion of portions of the Treasury bond yield curve this week would "have to be sustained over a period of time" to be taken as a "bearish" signal for the U.S. economy.”

In spite of generally better-than-expected U.S. economic data, financial markets remained on a defensive theme as trade headlines continue to weigh. Bonds rallied and equities were mixed, but generally in negative territory, ANZ research reported.

Treasuries continued to rally on trade war fears, with the yield on 30 year bonds reaching new lows. AUD rates will trade in kind with these moves, with no significant data out today. Sentiment remains weak as rising trade tensions are exacerbated by weak economic data., the report added.

However, Australia’s surprisingly strong employment gain of 41.1k in June, largely due to a 34.5k rise in full-time employment, barely helped the debt market. The unemployment rate remained at 5.2 percent with the participation rate increasing to a fresh record high of 66.1 percent.

Meanwhile, the S&P/ASX 200 index rose 0.3% to 6,359.50 by 04:50GMT