Australian government bonds are selling off

Mark Wilson/Getty Images
  • Australian government bonds are selling off, following the lead provided by US treasuries on Wednesday.
  • The yield on benchmark 10-year Australian Commonwealth Government Bonds (ACGB) has surged to 2.724%, up 7.5 basis points from Wednesday’s closing level.
  • Despite higher Australian rates, the lift in the US yield curve has seen the Aussie dollar sell off sharply and weighed on defensive stocks during US trade.

Australian government bonds are selling off, following the lead provided by US treasuries on Wednesday.

The yield on benchmark 10-year Australian Commonwealth Government Bonds (ACGB) has surged to 2.724%, up 7.5 basis points from Wednesday’s closing level.

It now sits at the highest level since October 27.

Investing.comAustralia CGB 10-Year Yield

The abrupt selloff follows a similar move in US bonds yields on Wednesday with 2, 10 and 30-year yields all hitting multi-decade highs during the session, a move largely driven by the release of strong US economic data.

At the margin, a slight lessening in concern surrounding Italy’s fiscal position also helped to boost yields, resulting in selling of safe-haven assets, including US government debt.

That’s also been reflected in Australian government securities, at least in early trade.

Despite Aussie yields following US yields higher, the spike in the latter has resulted in a sharp selloff in the Australian dollar with the AUD/USD currently teetering just above multi-year lows struck in early September.

If the evidence provided by US stocks overnight is anything to go by, the lift in yields is likely to weigh on defensive sectors of the Australian market such as utilities, consumer staples and telecoms.

These typically low-yielding sectors are vulnerable to higher interest rates given they sit further out on the risk spectrum compared to government bonds.

In contrast, higher rates often result in buying in the banks, something that was witnessed in the US on Wednesday.

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