Aussie 10-Year Yield at One-Month Low as Taper Concern Eases

Australia’s benchmark 10-year government bond yield dropped to a one-month low before Federal Reserve Chairman Ben S. Bernanke begins a second day of testimony following remarks that signaled no imminent exit from stimulus that has helped inflate asset prices across the world.

The Aussie dollar fell for a second day after a report showed Australian businesses turned pessimistic about near-term prospects, adding to the case for an interest-rate cut by the Reserve Bank. New Zealand’s kiwi dollar dropped for the first time in four days after a report showed consumer confidence weakened. Both currencies slumped after the International Monetary Fund said risks are increasing that China’s economic growth this year will fall short of the lender’s forecast.

“Australian bond yields are following U.S. Treasuries lower and also reflecting concern about Chinese growth and the RBA, given rising unemployment in Australia,” said Damien McColough, the head of fixed-income research at Westpac Banking Corp. (WBC) in Sydney.

Australia’s 10-year bond yield fell eight basis points, or 0.08 percentage point, to 3.67 percent today, after touching 3.65 percent, the least since June 20. The three-year rate fell five basis points to 2.66 percent.

The Australian currency dropped 0.7 percent to 91.72 U.S. cents and fell 0.1 percent to 91.89 yen as of 4:42 p.m. in Sydney. New Zealand’s dollar slid 0.4 percent to 78.74 U.S. cents and bought 78.89 yen from 78.75.

Bernanke Again

U.S. government debt rose yesterday after Bernanke told the House Financial Services Committee in prepared testimony that asset purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant. He will testify before the Senate today.

Australia’s business confidence index for the next three months dropped to minus 1 in the second quarter from 2 in the previous three-month period, National Australia Bank Ltd. said in a survey released today.

“The Aussie still has a long-term target of the high 80s going into the end of the year,” said Kara Ordway, a currency strategist at City Index Group Ltd. in Sydney. “With some of the data coming out of the Asian region and China in particular, certainly if domestic data continues to look weak then the RBA definitely has a case for further easing.”

There’s a 63 percent chance that the Reserve Bank of Australia will cut its benchmark interest rate to a record low of 2.5 percent from 2.75 percent next month, Bloomberg calculations based on swaps show.

A gauge of consumer confidence in New Zealand fell to 119.8 in July from 123.9, ANZ Bank New Zealand Ltd. and Roy Morgan Research said in a report.

“Downside risks” to the IMF’s 7.75 percent growth estimate have risen after a gauge of manufacturing weakened in June, the Washington-based fund said yesterday in its annual assessment of China’s economy. The report, which forecasts a second-half pickup, doesn’t reflect July 15 government data showing expansion slowed to 7.5 percent last quarter.

The Shanghai Composite Index (SHCOMP) fell for a second day, declining 1 percent.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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