Australia 10Y Yield Holds Gains

Australia’s 10-year government bond yield held its recent gains above 4.8%, attempting to rebound from a recent fifteen-week low, as global oil prices rose on renewed US-Iran tensions, while markets grew cautious ahead of key domestic economic releases this week. Investors will likely be focused on the release of CPI and jobs data for May, which will be pivotal for the Reserve Bank's next policy move. After holding the cash rate this month, the central bank signaled that future moves will depend on incoming data as it assesses the impact of its previous rate hikes on the economy. Markets now increasingly suspect that the tightening cycle is over with another hike seen as unlikely unless second-quarter inflation comes in significantly stronger than expected. Meanwhile, uncertainty over US-Iran peace talks drove oil prices higher after President Trump threatened fresh strikes if Hezbollah continues its attacks on Israel, while Tehran announced a renewed closure of the Strait of Hormuz.

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.

Australia’s 10-year government bond yield traded around 4.8%, staying near multi-month lows after the Reserve Bank kept rates unchanged for the first time this year. In a unanimous vote, the central bank held the cash rate at 4.35%, citing signs that three rate hikes earlier this year are beginning to filter through the economy. While policymakers reiterated that inflation remains elevated, a recent series of softer economic data gave the RBA room to pause and assess the impact of past tightening. Markets now await Governor Michele Bullock’s press conference later today for clues on whether policymakers are leaning toward an extended pause or maintaining a tightening bias. Three of Australia’s four largest banks expect the RBA to keep rates unchanged for the remainder of 2026, with some forecasting rate cuts next year. Elsewhere, global inflation concerns eased as oil prices fell sharply following a tentative US-Iran peace deal that could lead to the reopening of the Strait of Hormuz.