Australian bonds wane on stronger US data

The Australian bond market weakened on Thursday’s opening as US employment data improved.

Wednesday’s closing figure of 94.460 (5.540 per cent) for the March 10-year bond futures contract price fell to 94.370 (implying a yield of 5.630 per cent) at 0830 AEDT on the ASX 24, while the March three-year bond futures contract price went down to 94.760 (5.240 per cent) from 94.790 (5.210 per cent).

[Get this delivered on your inbox for FREE. Subscribe to our daily Markets Newsletter.]

The US ADP National Employment Report released overnight better than expected non-farm employment figures of 297,000 in December, with 92,000 additional hiring from the previous month. Economists earlier projected 100,000 employment figures for the world’s largest economy.

Matthew Johnson, UBS interest rate strategist, noted the overnight tracking of the weakened US Treasuries by the Australian bonds and attributed the world markets' sell off to the jump in employment data.

Johnson added that the market looks forward to Friday night’s (AEDT) release of the official US employment report. He said that if it matches ADP’s figures, “global yields will continue to rise and bonds will continue to fall.”

Johnson further commented that the performance of US economy greatly affects local bond market and interest rate.

Johnson said, "One of the reasons that the RBA is happy to have rates around neutral, which is where they are now, is that the global economy, not including China, has been quite weak.

"With the US looking much stronger, that increases the risk that the RBA may have to raise rates more quickly that the market currently expects.

"That's why I think our rates will rise a little further when the (bond) market opens up today."