Australian bonds sink on never-ending U.S.-China trade war issues; 10-year yield hits fresh record low

Australian government bonds sunk during Asian trading session Thursday as U.S.-China trade worries remained at the fore with news that the U.S. was considering more Chinese tech firms would be added to the blacklist. As sentiment remained fragile, the Australian 10-year bond yield slumped to a fresh record low.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 5 basis points to 1.590 percent, the yield on the long-term 30-year bond dipped 5-1/2 basis points to 2.238 percent while the yield on short-term 2-year slumped 3 basis points to 1.171 percent by 04:50GMT.

Wall Street slipped overnight as trade war concerns weighed on tech stocks, after US Treasury Secretary Mnuchin said he has no plans to go to China for trade talks yet, with chipmakers bearing the brunt of the selling amid news of Qualcomm’s antitrust ruling, while the 10-year U.S. Treasury bond yield treated down to 2.38 percent as risk appetite ebbed, OCBC Daily Treasury Outlook reported.

Moreover, the FOMC minutes highlighted that “In light of global economic and financial developments as well as muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Participants noted that even if global economic and financial conditions continued to improve, a patient approach would likely remain warranted, especially in an environment of continued moderate economic growth and muted inflation pressures”, the OCBC noted.

This suggests that the Fed is done with hikes, consistent with recent Fed rhetoric (eg. Williams opined “I don’t see any strong argument today…to move interest rates one way or the other”), but does not suggest any imminent rate cuts either even though futures is still pricing in a 70 percent probability of a cut by year-end, the report added.

Fed’s Bullard opined that the central bank may have “slightly overdone it” by hiking rates in December and “if anything we are a little restrictive”, but “I was pleased that the committee pivoted”.

The UK house leader and Brexit supporter, Andrea Leadson, has resigned from government, adding to recent pressure on Prime Miniser May to resign. It follows an attempt by May to push her amended Brexit deal through parliament for a fourth time, but looks set to fail again.

Meanwhile, the S&P/ASX 200 index rose 0.08 percent at 6,506.5 by 05:00GMT, while at 05:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -18.11 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex