Australian bonds surge as Turkey’s political woes linger despite measures to control falling lira; July employment report in focus

Australian government bonds surged during Asian session Wednesday as political woes from Turkey lingered on despite measures by the Central Bank of Turkey (CBRT) to control the free fall in the lira. Further, investors will now be focused on the country’s employment report for the month of July, scheduled to be released on August 16 for added direction in the debt market.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, slumped nearly 2-1/2 basis points to 2.562 percent, the yield on the long-term 30-year Note fell 2 basis points to 3.054 percent and the yield on short-term 2-year traded tad lower at 2.001 percent 03:50 GMT.

Turkey fears moderated overnight, with the finance minister pledging to defend the currency. And the rebound in the lira gave European banks and other emerging markets some respite. However, it is fair to say that the saga is not over. The root cause of Turkey’s problems – a very large external deficit denominated in foreign currency – remains unaddressed by authorities.

And it is also yet to be seen if tighter monetary policy will be adopted to support the currency, which would impact on growth. Investors will remain wary of possible contagion to the European banking system and will be keeping an eye on other countries with high levels of foreign-currency debt, ANZ Research said in its 'Morning Focus' report.

Australia’s Q2 wage price index (WPI) rose by 0.6 percent q/q and 2.1 percent y/y in Q2, in line with expectations. Growth in public wages (0.6 percent q/q) continued to outstrip private wages (0.5 percent q/q), although the gap is gradually closing.

Meanwhile, the S&P/ASX 200 index traded 0.42 percent higher at 6,266.5 by 03:55GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -172.46 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex