Australian bonds surge as January employment data raises prospects of RBA rate cut

Australian bonds surge on Thursday as January disappointing employment data has strengthened the prospects for Reserve Bank of Australia interest rate cut.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, declined 6 basis points to 0.986 percent, the yield on the long-term 30-year bond also plunged 6 basis points to 1.586 percent and the yield on short-term 2-year dipped 5 basis points to 0.704 percent by 04:50GMT.

ANZ in its latest research note said “the unemployment rate ticked back up to 5.3 percent in January, while employment rose modestly. The underutilisation rate jumped to a 19-month high. Alongside this, the participation rate edged back to 66.1 percent, just shy of the record high of 66.2 percent recorded in August last year. The RBA has been clear in its focus on the labour market as a key barometer of the health of the economy.

“It would be disappointed by the lift in the unemployment rate in January, but would likely characterise it as broadly stable at 5¼ percent. Leading labour market indicators continue to suggest a deterioration in unemployment over coming months. In our view, a further lift in the unemployment rate will be enough to push the RBA over the line for another rate cut, most likely in Q2,” ANZ reported.

Meanwhile, the S&P/ASX 200 index traded tad 0.33 percent higher at 7,115.50 by 04:50GMT.