AUS 10Y Yield Falls as Oil Prices Retreat

Australia’s 10-year government bond yield fell around 5% as oil prices retreated following a pause in the US-Iran conflict. The US suspended its nearly two-week campaign of strikes against Iran beginning late Friday, while Tehran said it had ended its retaliatory attacks and held talks with Oman over the Strait of Hormuz. Still, yields remained near a two-month high as concerns over persistent price pressures in Australia linger. The second-quarter CPI report, due on Wednesday, is expected to show core inflation rose 0.9% in the quarter, lifting the annual rate to 3.7% from 3.5%. The anticipated reading would remain well above the RBA's 2%–3% target range, reinforcing bets that policymakers will maintain a tightening bias. Markets currently imply a 30% chance the RBA will lift the 4.35% cash rate in August, with a move by November almost fully priced. Elsewhere, focus is on the upcoming monetary policy meeting by the US Federal Reserve, where rates are expected to be left on hold.

Australia’s 10-year government bond yield climbed above 5%, reaching the highest level since May 20 as robust jobs data reinforced the case of another rise in interest rates. The economy added 76,300 jobs in June, the largest increase since April last year and far above forecasts of a 15,300 gain, while the jobless rate held at 4.4% as expected, with the participation rate rising to a one-year high of 67%. The upbeat data reinforced signs of tight labor conditions and prompted markets to boost the odds of another rate hike by year-end to 90%, up from 78% previously. Combined with higher oil prices amid renewed fighting in the Middle East, the strong jobs report added to uncertainty over the inflation outlook and increased pressure on the Reserve Bank of Australia to keep policy restrictive. Investors now await second-quarter inflation data due next week, with core inflation expected to accelerate to 3.7% annually from 3.5%, remaining well above the central bank’s 2%-3% target band.

Australia’s 10-year government bond yield rose toward 5%, reaching a nine-week high as broader risks to global energy supplies fueled inflation concerns. US-Iran fighting continued near the Strait of Hormuz, while Houthi militants threatened shipping in the Red Sea. Supply concerns also spread to the Black Sea after attacks targeted a key export route for Kazakhstan's crude. The resulting surge in oil prices reinforced expectations that the Reserve Bank of Australia could tighten policy further after raising the cash rate three times to 4.35%, with markets pricing an 80% chance of another increase by December. Investors now await Australia's June employment report on Thursday, with forecasts pointing to a 15,000 rise in employment and an unchanged 4.4% unemployment rate. Inflation data for the second quarter are also due next week, with core inflation expected to accelerate to 3.7% annually from 3.5%, well above the RBA's target band, reinforcing the risk of another rate hike.