The Australian bonds slumped on Monday after Federal Reserve Chief Janet Yellen suggested that an interest rate hike could be around the corner. The yield on the benchmark 10-year Treasury note, which moves inversely to its price rose 2 basis points to 2.283 percent by 0455 GMT.
The Fed Chair Yellen on Friday said if economic gains continue and if the labour market continues to improve that it is appropriate for the Fed to gradually and cautiously increase the overnight interest rate over time and probably in the coming months, such a move would be appropriate. Although lacking a time factor, this continues to point to increased support for a summer rate hike from the FOMC.
“US Federal Reserve chair Janet Yellen's speech on Saturday morning (AEST) saying an interest rate rise is likely in coming months had supported risk sentiment and pushed global rates markets lower,” the ANZ economists said in a note.
Today, the US President of the Federal Reserve Bank of St. Louis Bullard said that monetary policy needn't address labour participation and one-time price level increase is better than QE. Bullard further said that revised GDP was encouraging and Q2 GDP rebound seems to be materialising. Said he prefers to reserve judgement until June meeting on interest rate policy and he has recently been critical of Fed's dot plot, might be giving too much forward guidance. He mentioned that no change will come to monetary policy regardless of who is elected president. He hopes neither Clinton nor Trump are interested in politicizing the Fed. He stated that markets are well prepared globally for possible US rate hike and he does not anticipate major market impact if there is a US rate hike in summer.
In addition, Australian Q1 inventories rose 0.4 percent, no change was expected from the economist, from down 0.4 percent in the previous quarter of 2016. On the other hand, company profits tumbled 4.7 percent, against market consensus of +0.4 percent, from prior down 2.8 percent.
“With a US and UK holiday today, markets are likely to be range bound with a bias to higher yields,” they added.
Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.33 percent, or 18 points, at 5,414 by 0455 GMT.
The material has been provided by InstaForex Company – www.instaforex.com