The Australian bonds rallied on the last trading day of the week Friday after the Reserve Bank of Australia (RBA) struck a cautious tone over the country’s rising household debt in its Financial Stability Report for the month of October, published early today.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1 basis point to 2.81 percent, the yield on the 15-year note also slid nearly 1 basis point to 3.09 percent and the yield on short-term 2-year traded flat at 1.94 percent by 03:10GMT.
The Reserve Bank has revealed deep concerns about the property market, warning interest-only borrowers are vulnerable to “payment shock” and that many households could be forced to dump their homes onto the market.
In a stark admission of the heightened threat to financial stability amid endless increases in household debt and rampant property prices, the RBA will launch “top-down stress tests” of the banking system, which will be carried out on top of the supervision from the Australian Prudential Regulation Authority.
In its twice-yearly Financial Stability Review, the RBA said interest-only borrowers remained more indebted throughout the life of the loan than other borrowers, which made them “more vulnerable to higher interest rates, reduced income, or lowering house prices”.
It also points out that the tightening of lending standards by major banks could lead to riskier lending migrating to the non-bank sector. Overall, Australia’s financial system remains in a strong position and its resilience to shocks has increased over recent years, the central bank said.
Meanwhile, the S&P/ASX 200 index rose 0.53 percent to 5,794.50 by 03:15 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bullish at 87.02 (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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