Australian Bonds Marginally Up on Weak Inflation Expectations

Australian Bonds Marginally Up on Weak Inflation Expectations

12 May 2016, 08:44
Roberto Jacobs

Australian Bonds Marginally Up on Weak Inflation Expectations

The Australian government bond marginally firmer Thursday after data showed that Melbourne Institute survey of consumer inflationary expectations dropped to 3.2 pct in May. Also, weak crude oil prices shifted investors towards safe assets. The yield on the benchmark 10-year Treasury note which moves inversely to its price, fell 2bps to 2.295 pct and the yield on the 2-year Treasury bond also dipped 2bps to 1.597 pct by 0530 GMT.

The Melbourne Institute Survey of consumer inflationary expectations declined 0.4 pct to 3.2 pct in May. The survey is a representation of the consumer’s view of price stability over the next 12 month period. The sentiment displayed by the interviewed consumers mirrored recent data events we have seen from Australia. It was just over 2 weeks ago, that we saw a significant deviation on CPI, which came in 0.5 percentage points below expectations and 0.6 percentage points below its previous reading. Some economists have forecasted that continued pressure on inflation, and inflation related data, could see the RBA take further action.

Moreover, the Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of Australia's target. Today, the crude oil prices fell by the gradual return of Canadian oil sands output, reversing a sharp rise the previous day when the U.S. government detailed an unexpected fall in crude inventories. According to the US DOE, crude inventories decreased 3.4 million barrels, as compared to previous build of 2.8 million barrels for the week ending 6 May. This came alongside decreases seen in gasoline inventories of 1.2 million barrels, from prior 0.5 million barrels. The International benchmark Brent futures fell 0.17 pct to $47.51 and West Texas Intermediate (WTI) tumbled 0.11 pct to $46.18 by 0530 GMT

"Australia underperformed once again, although only modestly. We expect a quiet session ahead," the ANZ economists said in a note.

The benchmark Australia's S&P/ASX 200 index was up 0.3 pct, or 16 points, at 5,347.5 by 0530 GMT.

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