Asia Pacific bonds stronger as dollar softness endures

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Asia Pacific sovereign bonds strengthened in morning trade on Tuesday as dollar softness continued against regional currencies and oil prices stabilised.

Australian government bonds were lower after minutes from the Reserve Bank of Australia’s March meeting showed the central bank had become more concerned about the domestic housing market and less optimistic on the prospects for wage growth and inflation.

Yield, which moves opposite price, on the 10-year government bond was down 2 basis points at 2.794 per cent. That for the corresponding New Zealand note was down 3bp at 3.174 per cent.

Paul Dales, chief Australia and New Zealand economist for Capital economics, said the RBA was beginning to wonder whether inflationary pressures were more subdued than previously thought.

“This is one of the conditions that would be necessary to trigger further rate cuts. The other is an easing of its financial stability concerns,” he said. “The strong housing market shows that’s not happening yet, but the recent rises in mortgage rates and talk of tighter constraints on lending suggests that housing will end the year weaker than it started it.”

Elsewhere in the region yield on the 10-year Korean government bond was down 1bp at 2.17 per cent, while that on the equivalent Japanese note was down by the same amount at 0.056 per cent.

The dollar was softer as regional currencies climbed, with the dollar index measuring the greenback against a basket of peers off 0.3 per cent at 100.3. The currency has come under pressure during the last week from Investor reaction to the Fed’s latest meeting on monetary policy, the tone of which was interpreted as more dovish than expected, as well as to the Trump administration’s protectionist rhetoric.

South Korea’s won led gains, firming 0.3 per cent to Won1,116.36 per dollar as ex-president Park Geun-hye arrived at the prosecutor’s office in Seoul for questioning. The won is 1.4 per cent stronger in the week so far.

Japan’s yen was flat in the morning session at ¥112.57 per dollar at briefly firming to the strongest level since February 28. The Australian dollar was off 0.1 per cent at $0.7723.

Asia Pacific equities markets were mixed after a negative lead-in from Wall Street, where the S&P 500 index fell 0.2 per cent on Monday.

Australia’s S&P/ASX 200 index was off 0.1 per cent. Stocks in a handful of companies including milk powder makers Bellamy’s Australia and a2 Milk Company as well as vitamin maker Blackmores were boosted by news that China had decided to back down on proposed plans to tighten cross-border e-commerce rules.

In Tokyo, the Topix index was recovering from an early dip to be down just 0.1 per cent as markets returned following a Monday holiday, although financial stocks remained down 1.1 per cent. Shares in airbag maker Takata were down 5.1 per cent after Japanese newswire Kyodo reported on Friday that automakers were considering filing for bankruptcy on its behalf.

Hong Kong’s Hang Seng index was up 0.1 per cent in early trading, building on a previous close above the 24,500-point mark that had left the benchmark at its highest level since August 2015.

Oil prices were making a tentative recovery after being pushed down by enduring concerns about high US crude inventories on Monday. Brent crude, the international benchmark, was up 0.4 per cent at $51.84 a barrel, while US marker West Texas Intermediate had gained 0.3 per cent to $48.36.

Gold was off 0.2 per cent in morning Asia trade at $1,230.06 per ounce.

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