AUS 10Y Yield Rises Above 5%

Australia’s 10-year government bond yield rose above 5%, moving toward multi-decade highs as persistent uncertainty over the Middle East conflict kept inflation concerns elevated, while investors await the federal budget for guidance on future issuance. Australia’s government is set to unveil its annual budget later today, with expectations of a narrower-than-forecasted deficit of around A$25 billion, or 0.8% of GDP. The budget is expected to emphasize spending restraint and signal a potential pullback in bond issuance. Commonwealth Bank of Australia estimates issuance could fall to about A$115 billion in fiscal 2027, down from roughly A$125 billion this year. Some analysts also note that a lower government cash balance would make Australian debt more attractive, supporting demand if supply pressures ease. Meanwhile, ongoing difficulties in US–Iran diplomacy and a potential resumption of military operations in the conflict, kept energy prices and inflation risks elevated.

Australia’s 10-year government bond yield hovered around 5%, moving near multi-decade highs as uncertainty surrounding the Middle East conflict intensified, keeping inflation risks elevated. The US and Iran continue to struggle toward a diplomatic resolution, while renewed attacks across the region threatened to undermine a fragile ceasefire. The Strait of Hormuz also remains effectively closed, keeping energy prices elevated and intensifying inflation concerns. This strengthened expectations that central banks may keep interest rates higher for longer or raise further. In Australia, markets are pricing around a 18% chance of another rate hike in June, after 75 bps of tightening over the past three meetings. The odds rise to about 82% for August, with a rate near 4.6% fully priced in by September. Meanwhile, rising oil prices has also put pressure on the government to restrain spending in its 2026/27 budget due this week, expected around a narrower A$25 billion deficit (0.8% of GDP).

Australia’s 10-year government bond yield held below 5%, sitting at a two-week low as hopes for a US-Iran peace deal triggered a sharp decline in oil prices and helped ease inflation worries, while disappointing domestic trade figures weighed on sentiment. Australia unexpectedly posted a goods trade deficit of AUD 1.84 billion in March, its first in over eight years, as imports of data centre computing equipment surged, while shipments of fuel also jumped on higher prices. Meanwhile, global oil prices tumbled, easing concerns over inflationary pressures after reports that the US and Iran are moving toward formally ending the conflict, potentially reopening the Strait of Hormuz and paving the way for further nuclear talks. On Tuesday, the RBA extended its tightening cycle to a third straight meeting, reinforcing its commitment to returning inflation to the 2–3% target. Markets now see only a 20% chance of another move in June, while a further increase by September remains fully priced.