AUS 10Y Yield Trades Near Multi-Decade Highs

Australia’s 10-year government bond yield rose toward 5.4%, near its highest since mid-2011, tracking a global bond selloff fueled by strong US economic data, higher oil prices, and hawkish central-bank expectations. Strong US business activity has increased expectations for another Fed rate hike, pushing Treasury yields sharply higher. Rising oil prices also added to inflationary pressures after Iran cast doubt on progress in Middle East peace talks. In Australia, employment rose by a stronger 39,500 in August, well above forecasts for a 20,000 increase, while the unemployment rate edged higher to 4.6%, its highest in five years, pointing to mixed labor-market conditions. The report was the final major economic release before the Reserve Bank of Australia's September 28–29 meeting, but persistent inflation risks are keeping the central bank on track for another rate hike. Markets are pricing a 95% chance of a 25-bp hike to 4.60% in September and a possible peak around 5.10%.

Australia’s 10-year government bond yield fell below 5.3%, pulling back from mid-2011 highs and tracking lower global yields as easing concerns over Middle East supply disruptions reduced inflation pressures. Oil prices continued to decline amid signs of increased diplomatic efforts to resolve the Middle East conflict and restore energy flows from the region. In Australia, hawkish comments from the Reserve Bank’s top official reinforced expectations for further policy tightening. Governor Michele Bullock said upside inflation risks were materializing and warned that higher costs could make inflation more persistent. Her remarks follow statements over the past month by senior RBA officials that inflation remains elevated and needs to ease further. Markets now priced at least two more rate hikes by the February meeting, with around 95% chance the first occurs on September 29. Investors now await the upcoming labor market data later this week for further clues on the policy outlook.

Australia’s 10-year government bond yield traded above 5.3%, near its highest level since mid-2011, tracking a surge in global bond yields after the Federal Reserve delivered its first rate hike in three years. The Fed unanimously raised its federal funds rate by 25 basis points to 3.75%-4.00% as expected, citing elevated inflation, while updated projections showed 16 of 18 officials expect at least one more hike this year. Focus now turns to the Reserve Bank of Australia’s September 29 policy decision, with markets pricing an 85% chance of a 25bp increase from the current 4.35% rate and expectations for the cash rate to reach 4.85% by early 2027. The IMF also flagged persistent inflation and rising energy prices as risks that could require further RBA rate hikes. Meanwhile, traders continued to monitor developments in the Iran-US war and its impact on oil prices. Crude remains above $100 per barrel, although prices are easing as Saudi Arabia works to restore pipeline capacity.