Bond prices calm after storm in US
There was an expectation last month that the $US85 billion ($88 billion) a month bond purchase program would be wound down, but the two week US government shutdown has changed that.
Typically, the end to the US budget shutdown would see bond prices fall because of improved market sentiment.
CMC Markets strategist Michael McCarthy said the new expectations for the Fed's tapering helped bond prices rally in overnight trade, but they failed to gain much ground during local trade.
"We have seen a fairly calm reaction overall to the events of this week," he said. "This is against what will become normal trading conditions. Soon local markets will be speculating again about the potential for Fed's tapering and of course the impact of that will be global."
The December 10-year bond futures contract was trading at 95.920 (implying a yield of 4.080 per cent), up from 95.900 (4.100 per cent) on Thursday. The three-year contract was at 96.910 (3.090 per cent), up from 96.900 (3.100 per cent).
A backlog of US economic data delayed because of the shutdown will be released early next week.
Most will be released on Monday, but the key indicator of employment, non-farm payrolls for September, will be released on Tuesday. Meanwhile, the Australian dollar was heading higher on expectations the Fed won't wind back its stimulus program any time soon.
Late in the session on Thursday it was trading at US96.27 cents, US95.52 cents.
"We're looking pretty strong here," Easy Forex currency dealer Tony Darval said.
"Some people are saying it could be mid-2014 before the Fed tapers and the whole US dollar weakness theme could be a major trend, and that could get the Aussie dollar up to 98 or 99 US cents, even parity has been talked about by a few traders.
"If stocks continue to rally then the Aussie will outperform most currencies, except for the kiwi dollar," he said.
Frequently Asked Questions about this Article…
Bond prices calmed after a rally because expectations shifted regarding the US Federal Reserve's economic stimulus program. Initially, there was speculation that the Fed would wind down its $85 billion a month bond purchase program, but the US government shutdown altered these expectations, leading to a more stable bond market.
The US government shutdown impacted bond prices by changing expectations about the Federal Reserve's tapering of its bond purchase program. This led to a rally in bond prices, as investors anticipated that the stimulus would continue for a longer period.
The Federal Reserve's bond purchase program is significant because it injects liquidity into the economy, supporting financial markets and influencing interest rates. Changes in expectations about this program can lead to fluctuations in bond prices and yields.
As of the latest trading session, the December 10-year bond futures contract was trading at 95.920, implying a yield of 4.080%, while the three-year contract was at 96.910, implying a yield of 3.090%.
Upcoming US economic data releases, particularly the non-farm payrolls report, could impact the bond market by providing insights into the health of the economy. This data could influence expectations about the Federal Reserve's future actions regarding its stimulus program.
The Australian dollar is gaining strength against the US dollar due to expectations that the Federal Reserve will not wind back its stimulus program soon. This has led to a theme of US dollar weakness, which is benefiting the Australian dollar.
Potential future trends for the Australian dollar include further strengthening against the US dollar, possibly reaching 98 or 99 US cents, or even parity, if the US dollar weakness continues and if stocks continue to rally.
The Australian dollar is expected to outperform most currencies if stocks continue to rally, with the exception of the New Zealand dollar, which is also showing strong performance.
Call 1300 880 160
Start a chat
Schedule a call
