AUS 10-Year Yield Hovers at Two-Year High

Australia’s 10-year government bond yield traded around 5%, stuck in a sideways range near multi-decade highs as investors continued to grapple with inflation risks linked to the Middle East war. Although a ceasefire has mostly been held since early April, efforts to revive peace talks between the US and Iran stalled and energy flows via the Strait of Hormuz remained choked. The energy-supply shock caused by the conflict continued to fuel inflation risks, raising the likelihood that central banks will keep interest rates higher for longer or even hike them. Investors now await Australia’s upcoming March CPI report due on Wednesday, with headline inflation expected to rise 4.7% year-on-year, well above the Reserve Bank’s 2–3% target. Any signs of hotter inflation could solidify bets on a 25-basis-point rate hike at the central bank’s May 5 meeting. Markets are currently pricing in an 80% probability of a third rate hike this year to 4.35%.

Australia’s 10-year government bond yield traded around 5%, stuck in a sideways range near multi-decade highs as investors continued to grapple with inflation risks linked to the Middle East war, while strong domestic PMI data offered some support. Flash surveys pointed to a modest rebound in activity, with both manufacturing and services returning to expansion after March’s sharp weakness, lifting the composite index back above the growth threshold. The improvement suggested domestic demand remained resilient despite ongoing disruptions in the Strait of Hormuz. The Reserve Bank of Australia is already expected to raise rates next month as energy prices and inflation risks remain elevated due to Iran’s maintained control over the key shipping route, restricting international traffic and reportedly firing on commercial vessels. The US also upheld its blockade of Iranian ports, while diplomatic efforts showed little progress as Tehran indicated it does not plan to engage in talks.

Australia’s 10-year government bond yield hovered below 5%, moving sideways near multi-decade highs as investors continued to assess developments in the Middle East conflict, while tight labor market at home kept hawkish bets in place. The jobless rate held steady at 4.3% in March, while employment rose by 17.9 thousand, driven entirely by full-time jobs, signaling resilient labor demand despite external shocks from the conflict. This followed remarks from Deputy Governor Hauser, who said inflation is still running above target and that there is limited confidence that current interest rates are sufficiently restrictive. Markets are now pricing in a third straight rate hike in May, which would lift the cash rate to 4.35%. Meanwhile, concerns grew over the US-Iran ceasefire amid renewed hostilities in the Strait of Hormuz. While Trump moved to extend the ceasefire, Iran refused to join negotiations and warned it would keep the key waterway closed if US naval interceptions continue.