Australian bonds slump on better-than-expected October employment report; 10-year yield up 2bps

Australian government bonds slumped across the curve during Asian session on Thursday following better-than-expected October employment report, which witnessed a big jump in full-time jobs.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 2-1/2 basis points to 2.728 percent, the yield on the long-term 30-year bond also jumped 2-1/2 basis points to 3.238 percent and the yield on short-term 2-year up 3 basis points to 2.090 percent by 03:50GMT.

The ANZ A strong report, with a big jump in full-time jobs (+42.3k) and the unemployment rate holding at its six-year low of 5 percent. We and the market had been looking for a modest rise in the unemployment rate following its sharp fall in September. While a number of labour market indicators have eased a touch, the general message they are sending is still one of ongoing job gains and a gradual move lower in the unemployment rate.

The October data are consistent with this story and help to explain, among other things, the continued resilience of consumer sentiment despite a number of negative factors such as the weakening housing market and equity market volatility. We don’t think the employment report has any implications for the RBA, other than reinforcing the Bank’s bullish outlook, the ANZ reported.

On the other hand, investor sentiment soured again overnight, spurring a fall in global share markets and a rise in US bond yields.

“The U.S. 10-year treasury yields initially rose from 3.13-3.16 percent, but fell during the NY afternoon to close at 3.12 percent. The U.S. 2-year yields fell from 2.89-2.86 percent at the close. Fed fund futures yields repriced the chance of another rate hike in December at 70 percent (down from 75 percent).

Meanwhile, the S&P/ASX 200 index traded 0.87 percent lower at 5,693.5 by 04:00 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 120.44 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex