SYDNEY: Australian and New Zealand government bonds surged on Thursday, tracking a global rally on heightened speculation the European Central Bank (ECB) was preparing an easing package.
In contrast, both Antipodean currencies were little changed in subdued trade.
The Aussie was steady at $0.9365 and still stuck in a tight $0.9203-$0.9410 range after again failing to sustain a break above 94 cents. Support was seen at $0.9334, the 50 percent retracement of the April-May fall.
The currency was hovering near six-month highs against the euro, which has come under pressure following a Reuters report that the ECB is preparing a package of policy options for its June meeting, including cuts in all its interest rates.
That, combined with the Bank of England head dousing expectations of near-term monetary tightening, sparked a bond rally worldwide.
Australian government bond futures surged with the three-year bond contract up 5 ticks to 97.190, near a two-month peak.
The 10-year contract leapt to a nine-month high of 96.285, having gained 52 ticks since early April.
It was last at 96.265. Yields on the 10-year cash bonds dropped to a nine-month low of 3.74 percent, and a break below 3.73 would target 3.58 percent, a trough set in June last year. Yields have fallen from a peak of 4.41 percent in January.
"Spreads between Australian and US bonds have gone quite tight and reflects the fact that markets now think the Fed (US Federal Reserve) will be hiking at the same time as the RBA (Reserve Bank of Australia), whereas previously they thought the RBA would be first," said Andrew Lilley, a strategist at UBS.
New Zealand government bonds also jumped, sending yields as much as 6.5 basis points lower at the long end of the curve.
Ten-year yields fell to 4.26 percent, the lowest level since August.
They were at 4.80 percent in January. The New Zealand dollar found a steady footing at $0.8666, from a low of $0.8615 Wednesday, keeping its distance from a 2 1/2-year high of $0.8779 hit last week.
Technical support lay around $0.8600, a level which roughly contains trendline support drawn from lows hit this year and the 23.6 percent retracement of the kiwi's rally since February. The government released an expected no-frills budget vowing to deliver its first surplus in seven years by June 2015, in contrast with Australia's budget which plans a return to black in a decade.
The New Zealand government also forecasts an increase in debt issuance.
The currency usually doesn't react to the annual budget release, which has few implications for monetary policy.
Markets expect the Reserve Bank of New Zealand to hike interest rates from 3 percent by 83 basis points on a 12-month horizon.
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