Australia 10Y Yield Rises Above 5%

Australia’s 10-year government bond yield rose above 5%, moving back toward multi-week highs after the Reserve Bank kept its cash rate unchanged at 4.35% for a second consecutive meeting, as widely expected. The unanimous decision came as the central bank said the economy was slowing as expected under tighter financial conditions, while keeping the option of another rate hike if upside inflation risks materialize. Markets had also expected rates to remain unchanged after second-quarter inflation came in below forecasts and the housing market weakened more than policymakers had anticipated. The RBA has already raised rates three times this year, as stubborn inflation and higher energy costs continued to weigh on the outlook. Markets now price around a 40% chance of another hike this year, down from 50% before the decision. Attention now turns to Governor Michele Bullock, who is due to testify before parliament on Friday, while Assistant Governor Chris Kent is scheduled on Thursday.

Australia’s 10-year government bond yield held above 4.9%, staying near multi-week highs as investors looked ahead to the Reserve Bank of Australia’s monetary policy decision on Tuesday. The central bank is widely expected to keep its cash rate unchanged at 4.35% for a second straight meeting, although policymakers are expected to maintain a hawkish stance as inflation remains elevated. Markets are pricing around a 50% probability of another 25-basis-point rate hike by year-end, while traders will closely watch the RBA’s updated forecasts and Governor Michele Bullock’s comments for clues on the future policy path. Elsewhere, persistent uncertainty over efforts to reopen the Strait of Hormuz drove oil prices higher and fueled concerns over elevated inflation. Iran said talks with Oman on a shipping route through the strait were nearing an agreement, but stressed that the waterway would not reopen immediately, while Tehran also rejected direct talks with the US for now.

Australia’s 10-year government bond yield rose around 5%, moving toward multi-week highs as renewed tensions in the Middle East revived inflation concerns. Oil prices climbed following reports of Iranian attacks in the Strait of Hormuz and a lack of clarity on an agreement to reopen the crucial waterway. Tehran is seeking to restrict US and Israeli vessels from using the waterway while demanding compensation from countries it considers hostile. Higher energy prices reignited inflation concerns and reinforced expectations that global interest rates could remain higher for longer. In Australia, after three rate hikes this year, markets are pricing in virtually no chance of a rate increase at the Reserve Bank's policy meeting next week following softer-than-expected second-quarter inflation data. Investors are also assigning little chance of a move in September, while pricing roughly a 60% probability of a rate hike in November if third-quarter inflation proves stronger than expected.