Australia 10Y Yield Stays Near 2-Week Lows

Australia’s 10-year government bond yield traded above 4.9%, but stayed near two-week lows as markets continued to assess diplomatic efforts in the Middle East, while the Reserve Bank signaled a wait-and-see approach. The central bank has already delivered three hikes this year, and Governor Michele Bullock said the rate increases are starting to filter through the economy. However, she reiterated that inflation remains elevated and policymakers will remain alert to persistent price pressures. Markets expect the RBA to stand pat in June, with about a 50% odds of another hike in August and full pricing for a move by December. Investors now await further clues on the policy outlook, with Deputy Governor Andrew Hauser due to speak later today. Meanwhile, ceasefire negotiations in the Middle East conflict appeared uncertain, with conflicting signals from Washington and Tehran. Prospects are further complicated as Iran-backed Hezbollah rejected a US-brokered truce proposal in Lebanon.

Australia’s 10-year government bond yield traded around 4.9%, hovering near eight-week lows as softer-than-expected GDP data reinforced bets of fewer rate hikes. The economy grew by just 0.3% in Q1, below expectations of 0.5% and down from 0.9% previously, while annual growth of 2.5% also missed forecasts, reinforcing signs that higher interest rates are cooling demand. The softer readings feed into the Reserve Bank’s June 15–16 policy meeting, where officials will assess whether policy is sufficiently restrictive to bring inflation back to target after three rate hikes this year. This comes against a backdrop of geopolitical tensions in the Middle East, which have pushed up global energy costs and fueled inflation risks. RBA Governor Bullock set to appear before lawmakers later today and Deputy Governor Hauser scheduled to speak on Friday will offer further clues on the policy outlook. Markets have ruled out another rate hike this month, but remain evenly split for a move in August.

Australia’s 10-year government bond yield traded to around 4.8%, hovering near eight-week lows as markets sharply reduced expectations for further rate hikes amid signs that earlier monetary tightening is beginning to filter through the economy. This comes after a softer-than-expected April inflation print and weaker consumer spending data earlier this week, as well as recent signs of cooling in the labour market, prompted investors to sharply cut the odds of a June rate hike to just 5%. Markets still price in a 70% probability of one final move to 4.6% in the last quarter of the year. Attention now turns to a raft of economic data this week, including the April trade balance, current account, and key GDP numbers, which will provide further clues on the economy’s health. Elsewhere, global oil prices continued to rise, as a US-Iran ceasefire deal remains elusive, tensions in the Middle East stay elevated, and efforts to reopen the Strait of Hormuz have shown little progress.