Australian bonds slump on profit booking; Scott Morrison will replace PM Malcolm Turnbull

Australian bonds slumped on the last trading day of the week Friday as investors cashed in profits after a short-lived rally following political uncertainties. In the context of recent political developments, Scott Morrison has won party showdown and will replace Malcolm Turnbull to be the next Prime Minister.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 2 basis points to 2.547 percent, the yield on the long-term 30-year bond also jumped 2 basis points to 3.064 percent and the yield on short-term 2-year climbed 2-1/2 basis points to 2.007 percent by 03:40GMT.

Australian Treasurer Scott Morrison will replace Malcolm Turnbull to become Australia’s sixth prime minister after emerging victorious in a Liberal party leadership vote on Friday. This comes after Prime Minister Turnbull fell into leadership challenge, despite winning no-confidence motion by seven votes on Tuesday. On Thursday, three key cabinet members resigned and supported rival Peter Dutton.

“Australian political uncertainty has the potential to linger for a while. However, we don’t see wholesale changes in the policy agenda. Moreover, this latest leadership spill is occurring against a stronger economic backdrop than in previous episodes. The Australian fiscal situation is now healthier and the economy has better momentum (in part because the terms of trade is no longer falling sharply), arguably providing the economy with more resilience,” noted economists at ANZ.

Political uncertainty has added to bonds firmness as global factors continue to weigh. However, investors booked profits on the last trading day. Also, Australian bonds yield rose following weakness in the U.S. Treasury.

“US 10-year treasury yields ranged sideways between 2.81 percent and 2.83 percent. US 2-year yields rose from 2.59 percent to 2.62 percent. Fed fund futures yields continued to price an almost 100 percent chance of a rate hike on September 26.

Meanwhile, the S&P/ASX 200 index traded 0.14 percent lower at 6,230.5 by 03:40GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 4.85 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex