Aussie bond abated after US central bank statement

The Australian bond market reacted negatively on the US central bank’s statement that the continuing economic recovery is not enough to subdue unemployment.

Noting that the unemployment rate is currently elevated, the Federal Open Market Committee (FOMC) in its press release yesterday said that it continues to encumber household spending in spite of its moderate increase.

The December 10-year bond futures contract went down from Tuesday’s 94.355 (5.645 per cent) to 94.290 (suggesting 5.710 per cent yield) at 0830 AEDT on the ASX 24. The December three-year bond futures contract also went lower from 94.775 (5.225 per cent) to 94.755 (5.245 per cent).

James Land, Nomura Australia fixed income head, attributes the Australian bond futures decline to a couple of factors, namely, the stronger retail trade that had transcended forecasts and the bond’s negative reaction to the FOMC statement.

On the retail trade, Land says, “Not only did the actual number exceed forecasts, the prior two months also exceeded forecasts.’

As to the bond’s reaction to the FOMC statement, Land comments,"The bond market has interpreted the stronger than expected data that we've seen over the last month in conjunction with the Fed's commitment to continually refloat the economy through large scale asset purchases as an inflationary step."