Aussie Bonds Rise as Currency Touches Month-Low on Ukraine Woes
Australian government bonds rose, driving benchmark yields to the lowest in at least a month, as tensions over Ukraine spurred demand for haven assets.
The Australian dollar touched a four-week low before Reserve Bank officials meet tomorrow and ahead of gross domestic product data on March 5. New Zealand’s currency slid from a 1 1/2-month high reached last week, as Asian stocks fell.
“In terms of the broader fixed-income space, yields are falling and Aussie bonds are part of that,” said Michael Turner, a Sydney-based debt and currency strategist at Royal Bank of Canada. “No one really wants to be short, given where bonds have rallied to.”
Australia’s 10-year (GACGB10) government bond yield was at 3.98 percent as of 4:55 p.m. in Sydney after earlier dropping to as low as 3.96 percent, a level unseen since Feb. 4. The yield on debt due in three years, among the most sensitive to interest-rate expectations, touched 2.76 percent, the least since September.
The MSCI Asia Pacific Index of shares declined 0.7 percent.
Sovereign debt by Australia, one of only 10 nations that hold the top credit score by all three major ratings companies, gained as investors sought haven assets amid tensions in eastern Europe. U.S. Secretary of State John Kerry is traveling to Ukraine today as leaders seek to respond to Russia seizing control of the eastern European country’s Black Sea region of Crimea.
RBA officials meeting tomorrow will keep Australia’s cash rate unchanged at a record-low 2.5 percent, according to all 32 economists polled by Bloomberg. Governor Glenn Stevens said stability in borrowing costs would be “the most prudent course” in a statement following the bank’s most recent decision on Feb. 4.
“The strength of U.S. Treasuries will likely weigh on Australian yields this week, and the short-end of the curve has removed much of the rate hike expectation over 2015-16,” Commonwealth Bank of Australia analysts including Richard Grace, the Sydney-based head of currency and rates strategy, wrote in a report today.
The Australian dollar was unchanged at 89.24 U.S. cents after sliding to 88.91, the weakest since Feb. 5. New Zealand’s kiwi dollar fell 0.4 percent to 83.60 U.S. cents after climbing to 84.26 on Feb. 28, strongest since Jan. 14.
“We’re starting the week with a risk-off tone from the events over the weekend, with the Russian and Ukrainian tensions escalating,” said Emma Lawson, a Sydney-based senior currency strategist at National Australia Bank Ltd. “It tends to be on geopolitical risk that currencies like the Aussie do tend to underperform.”
A gauge of Chinese factory output by HSBC Holdings Plc and Markit Economics dropped to 48.5 in February from 49.5 the previous month, matching the median estimate of economists surveyed by Bloomberg News. Government figures on March 1 showed manufacturing in the world’s second-biggest economy slowed last month. China is Australia’s biggest trading partner.
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