Bonds close firmer after solid rally
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Australian reports
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World reports
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AAP
2009-11-26
The Australian bond market closed firmer on Thursday after a solid rally in the wake of unexpectedly weak capital spending figures.
At 1630 AEDT, the yield on the Commonwealth Government March 2019 bond was at 5.287 per cent, down from Wednesday's close of 5.398 per cent, while the yield on the April 2012 bond was at 4.711, down from 4.791 per cent previously.
On the Sydney Futures Exchange, the December 10-year bond futures contract was at 94.705, up from Wednesday's close of 94.590, while the December three-year bond futures contract was at 95.200, up from 95.110 previously.
The debt market benefited from a positive background of overnight gains in the US bond market where yields edged lower after a well-received auction of seven-year Treasury notes.
Weakness in regional share markets during the day also helped to underpin the rally, said ICAP senior economist Adam Carr.
The September quarter private capital spending figures from the Australian Bureau of Statistics (ABS) were the catalyst for the rally, he said.
The ABS said capital spending (capex) fell by 3.9 per cent in real, seasonally adjusted terms in the September quarter, surprising economists who had mostly expected a small increase.
"We have rallied, quite aggressively in some cases," Mr Carr said.
Between the release of the data and the close on Thursday afternoon, December three year bond futures rallied 11 ticks, December 10 year bond futures rallied 10 and March 90 day bank bill futures gained eight.
"And it looks like the capex data drove it," said Mr Carr.
"The ABS capex data was quite a bit weaker than the market was expecting and I think that's spooked people that maybe the RBA's not going to hike next week," he said.
The Reserve Bank of Australia (RBA) raised the cash rate to 3.25 per cent from 3.0 per cent in October, then to 3.5 per cent earlier this month.
Mr Carr said he still expected the RBA to raise the cash rate at its monthly monetary policy meeting on Tuesday.
He said the RBA would look through the dip in capex in the September quarter, because it followed a gain in the June quarter and the outlook for capital sending was "fantastic".
