AUS 10Y Yield Snaps 2-Session Gains

Australia’s 10-year government bond yield slipped to around 4.8% on Friday, ending a two-session advance as investors assessed major banks’ hawkish interpretations of the Reserve Bank of Australia’s June meeting minutes. Although markets continued to price only a 15% chance of an August rate hike and roughly even odds that the tightening cycle has ended, CBA said the minutes struck a hawkish tone, citing repeated references to excess demand and capacity constraints as evidence that the RBA remains concerned about inflationary pressures. Likewise, ANZ said the minutes reinforced the risk of a further rate increase while maintaining its core rate forecast. On the economic front, Australia’s S&P Global Composite PMI was revised up to 50.4 in June from a preliminary reading of 49.8, supported by a return to expansion in services activity (50.5 vs 48.7) and stronger manufacturing growth (51.5 vs 50.7).

Australia’s 10-year government bond yield rose above 4.8%, climbing off from four-month lows as markets continued to wager on near-term US rate hikes, while paring back expectations for further tightening at home. The sharp de-escalation of the Middle East conflict and the reopening of the Strait of Hormuz drove oil prices back to pre-war levels, easing inflation risks and prompting markets to scale back expectations for further rate hikes in Australia. An August move by the Reserve Bank is now priced in at just 15% chance, while markets see a 50% probability that the tightening cycle has ended. Meanwhile, bond markets came under pressure after US Treasury yields surged as investors increased bets on a Federal Reserve rate hike ahead of Thursday's crucial jobs report, with a September move now almost fully priced in. This came despite Fed Chair Kevin Warsh saying inflation expectations had eased over the past month.

Australia’s 10-year government bond yield traded around 4.7%, remaining near four-month lows as lower oil prices and wagers of US rate hikes outweighed the RBA’s restrictive policy stance. Minutes from the Reserve Bank's June meeting showed policymakers agreed rates should remain restrictive to curb excess demand and bring inflation back to target even as economic growth slowed. The board also said they are prepared to raise rates further if needed as developments in the Middle East still pose upside risks to inflation. Despite the hawkish tone, the recent retreat in oil prices have led investors to pare the risk of another rate hike at the August meeting to around 15%, with markets also starting to price in rate cuts as early as mid-2027. Meanwhile, mounting bets on US rate hikes have helped Aussie bonds outperform Treasuries, shrinking the yield premium. Strong US economic data underscored the economy’s resilience, prompting markets to price in a rate hike as early as September.