AUS 10Y Yield Climbs After RBA Decision

Australia’s 10-year government bond yield fell below 4.8%, near four-month lows after a mixed inflation report did little to shift expectations for further interest rate hikes. Headline consumer prices fell 0.7% in May from the previous month, pulling annual inflation down to 4.0% from 4.2% and marking the slowest pace in three months. However, underlying price pressures remained firm, with the trimmed mean inflation rising 0.4% on the month, above forecasts, lifting the annual core rate to 3.6%. The mixed inflation data has left markets divided, pricing roughly 50% odds of another rate hike, with any move seen more likely later in the year rather than at the August meeting. Meanwhile, progress in ongoing US-Iran peace talks and increased shipping activity through the Strait of Hormuz helped ease inflation concerns. The hawkish outlook for US interest rates has also helped Australian bonds outperform Treasuries, adding downside on Aussie's yield premium.

Australia’s 10-year government bond yield fell below 4.8%, trading near fifteen-week lows as signs of progress in ongoing US-Iran peace talks helped ease inflation concerns, while caution built ahead of domestic inflation and jobs data this week that could indicate whether the Reserve Bank has finished raising rates. Headline inflation is expected to pick up to 4.4% in May from 4.2% from a month earlier, while core measure likely edged up to 3.5% from 3.4%, both well above the central bank’s target. Deputy Governor Andrew Hauser is expected to speak about the inflation outlook after the CPI release. For the jobs data, a rise of 25,000 net jobs for May is expected, while the unemployment rate likely fell to 4.4% after hitting a 4 1/2 -year high of 4.5% last month. Meanwhile, the US and Iran recently agreed on a 60-day roadmap toward a final deal, and now Washington issued Tehran a license to sell oil on international markets, fueling expectations of a faster recovery in global supply.

Australia’s 10-year government bond yield hovered below 4.8%, trading near fifteen-week lows as global oil prices declined on optimism over the reopening of the Strait of Hormuz. An interim deal between the US and Iran to end the Middle East war allowed oil tankers to resume passage through the key waterway, helping ease inflation concerns and reduce pressure on central banks to maintain restrictive policy. Meanwhile, markets increasingly suspect the Reserve Bank of Australia has concluded its tightening cycle after leaving the cash rate unchanged this week, with the odds of another hike this year falling to around 50% and only a 25% chance priced in for August. While Governor Michele Bullock maintained that further tightening remains possible if inflation persists, markets expect it would take a sharply higher second-quarter inflation reading to trigger another move. Attention now turns to the upcoming May CPI report due next week, which will be pivotal for the policy outlook.