A two-month rally in benchmark Australian government bonds is poised to end with the worst loss since 2009 amid speculation monetary policy easing in China, the world's biggest consumer of commodities, will boost Australia's resource-driven economy and inflation.
Government securities lost 1.1 per cent on Thursday, the worst return since a 1.15 per cent fall in June 2009, a Bank of America Merrill Lynch index shows. Treasuries lost 0.16 per cent, while sovereign debt globally gained 0.22 per cent.
China's demand for iron ore and coal amid loosening credit by the nation's central bank may help Australia grow 3.7 per cent this year, faster than the predicted pace for nations within the Group of 10, according to analyst estimates compiled by Bloomberg.
Australia's 10-year bond yield is poised to rise for the first time in three months, from a record low 3.648 per cent on December 30. The so-called real yield shrinks to 0.71 per cent after taking inflation into account.
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"We expect quite a bit of fiscal support and some monetary support in China," said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd, the country's fourth-largest bank by market value.
"Added stimulus for China's economy would also underpin growth expectations in Australia and likely see bond yields rise."
NAB estimates the 10-year bond yield will climb from 3.81 per cent on Friday to 4.2 by March 31 and will finish the year at 4.7 per cent.
That compares with the weighted average forecast for an increase to 4.01 percent in the first quarter and 4.46 per cent by year-end, according to a Bloomberg News survey of financial companies.