Australian bonds slump on bumper trade surplus; September retail sales data in focus

Australian government bonds slumped across the curve during Asian session on Thursday as investors’ moved from safe-haven buying after the country's trade surplus jumped to a near 2-year high in September.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 4 basis points to 2.656 percent, the yield on the long-term 30-year bond also jumped 4 basis points to 3.146 percent and the yield on short-term 2-year climbed 3-1/2 basis points to 2.011 percent by 04:00GMT.

According to the ANZ report, the monthly trade surplus widened much more than expected in September. This was driven by a surge in iron ore exports and a fall in the volatile civil aircraft component of imports. The August trade surplus was also revised sharply higher, providing a higher base for September’s figures. Service exports also performed well, due to a rise in travel, which was expected given the depreciation of the AUD.

Looking through the volatility, imports growth continues to be consistent with a domestic economy that is performing well. Despite the widening in the trade surplus, net exports are set to make no contribution to GDP growth in Q3, the ANZ reported.

Investor sentiment improved overnight, resulting in a rebound in global share markets and a lift in US bond yields.

“The U.S. 10-year treasury yield rose slightly for the third consecutive day, from 3.12-3.14 percent. The 2-year yield rose from 2.85-2.87 percent. The Fed fund futures yields priced the chance of a rate hike in December at 75 percent,” noted economists from St.George Bank.

It will be a quiet data day in Australia and New Zealand.

Meanwhile, the S&P/ASX 200 index traded 0.27% lower at 5,807.5 by 04:00 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 146.39 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex