Australia 10Y Yield Stays Near 4-Month Low

Australia’s 10-year government bond yield rose above 4.7%, but remained near a four-month low as markets pared back expectations of further domestic rate hikes, while renewed Middle East tensions reignited inflation concerns. Although the US and Iran agreed to pause further attacks after the recent exchange of strikes around the Strait of Hormuz, oil prices climbed as the latest escalation disrupted the recovery in oil shipments through the strategic waterway that had followed an earlier interim agreement. In Australia, focus turns to Tuesday's release of minutes from the Reserve Bank’s most recent interest-rate setting meeting. The central bank left the cash rate unchanged at 4.35% at its June meeting following three rate hikes earlier this year. Despite a rebound in employment data, recent mixed inflation figures left the markets split on another rate hike, implied around 50% by year-end, while some have started pricing in rate cuts in the second half of 2027.

Australia’s 10-year government bond yield fell around 4.7%, hitting nearly a four-month low as falling oil prices and a widening US-Australia policy gap outweighed stronger domestic employment data. The economy added 40,300 jobs in May, rebounding from a revised decline of 40,600 in April and above forecasts for a 30,000 increase, while the unemployment rate dipped to 4.4% from 4.5%, as expected. The latest jobs data and the recent mixed inflation figures left the markets split on another rate hike, implied around 50% by year-end, while some have started pricing in rate cuts in the second half of 2027. Meanwhile, mounting bets on US rate hikes have helped Aussie bonds outperform Treasuries, shrinking the yield premium. The Federal Reserve adopted a surprisingly hawkish stance last week, prompting markets to price in a 75% chance of a rate hike as early as September. Progress in US-Iran peace talks have also pushed oil prices back to pre-conflict levels, easing inflation concerns.

Australia’s 10-year government bond yield fell below 4.8%, near four-month lows after a mixed inflation report did little to shift expectations for further interest rate hikes. Headline consumer prices fell 0.7% in May from the previous month, pulling annual inflation down to 4.0% from 4.2% and marking the slowest pace in three months. However, underlying price pressures remained firm, with the trimmed mean inflation rising 0.4% on the month, above forecasts, lifting the annual core rate to 3.6%. The mixed inflation data has left markets divided, pricing roughly 50% odds of another rate hike, with any move seen more likely later in the year rather than at the August meeting. Meanwhile, progress in ongoing US-Iran peace talks and increased shipping activity through the Strait of Hormuz helped ease inflation concerns. The hawkish outlook for US interest rates has also helped Australian bonds outperform Treasuries, adding downside on Aussie's yield premium.