Australian bonds slump on mild easing in geopolitical tensions; 10-year yield hits 1-month high

The Australian government bonds slumped on Thursday as a mild easing in geopolitical tensions improved risk appetite, pushing the benchmark 10-year yield to a month high. However, the country’s underlying momentum in the economy remains weak, which would further drag down the bond yields.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, edged 4-1/2 basis points higher to 0.969 percent, the yield on the long-term 30-year bond also rose 4 basis points to 1.563 percent while the yield on short-term 2-year climbed 3-1/2 basis points to 0.805 percent by 03:20GMT.

“A range of easing political concerns , notably in Hong Kong, the UK and in Italy, drove a rebound in market sentiment. Additionally, Chinese economic data improved further easing concerns about the global outlook. Share markets rallied, although US bond yields were little changed. The Australian dollar is higher,” noted St.George Bank.

But the improvement in risk appetite was less evident in the U.S. bond market. Yields on U.S. treasuries were little changed– the U.S. 10-year yield edged 1 basis point to 1.48 percent.

“Global financial markets saw some reprieve yesterday, with the S&P500 staging a recovery while the 10-year U.S. Treasury bond yield treaded water at 1.47 percent,” noted OCBC Bank.

Contributing to the improvement in risk appetite were partial alleviation of geopolitical uncertainties, namely there was an agreement to form a coalition government in Italy, Hong Kong’s Chief Executive Carie Lam will formally withdraw the extradition bill, and the UK House of Commons voted 327-299 to prevent a no-deal Brexit on 31 October, albeit there was still no clarity on the road ahead as BoJo’s motion to hold snap elections on 15 October was also rejected, OCBC Bank added.

Meanwhile, the S&P/ASX 200 index rose 0.68 percent to 6,598.00 by 03:20GMT.