Australian bond futures prices have firmed on fears the nation is heading into a recession. Investors are still reacting to Thursday's poor business investment figures, UBS interest rate strategist Matthew Johnson says.
The official capital expenditure data showed business investment slumped in the first three months of the year and is expected to fall further in the coming financial year, AAP reported.
Johnson said it had sparked fears of a recession and increased speculation of further interest rate cuts. "The slow burn of the Capex report is still driving prices higher and yields lower," he said. "If you believe the data, business investment plans are at recessionary levels and if Australia is going into a recession then it means the Reserve Bank will cut rates."
He said a weak credit growth report from the RBA on Friday had also added to investors' concerns about the health of the nation's economy. While credit growth slowed in April, loans to residential property investors are still growing strongly.
At 1630 AEST on Friday, the June 2015 10-year bond futures contract was trading at 97.270 (implying a yield of 2.730 percent), up from 97.225 (2.775 percent) Thursday.
The June 2015 three-year bond futures contract was at 98.090 (1.910 percent), up from 98.040 (1.960 percent).
The Australian Bureau of Statistics (ABS) released data on actual and projected capital expenditure in the Australian economy. In short, the data was ugly. Peter Martin from the SMH.com says: "Two weeks after the budget, Australia’s economic outlook is bleak. "Mining as well as non-mining firms are planning to slash investment in the year ahead, cutting total investment spending by 21 percent. The Bureau of Statistics survey conducted in April and May is at odds with the budget forecast of a lift in non-mining investment."
