Australia 10Y Yield Falls on Soft Jobs Data

Australia’s 10-year government bond yield fell below 5%, reaching a one-week low after weak labor market data dampened the outlook for further RBA rate increases. Employment declined by 15,800 in July, reversing June’s upwardly revised gain of 80,300 and defying expectations of a 15,000 increase. This marked the first monthly drop since April. Meanwhile, the unemployment rate rose to 4.5%, above both market expectations and the previous month's 4.4%, reaching its highest level in three months. In its latest forecasts, the central bank projected the unemployment rate would rise to 4.8% by mid-2028 and remain around that level through the second half of the year, above the government's 4.5% estimate. While still relatively tight, Australia's labor market is showing signs of easing. The RBA raised the cash rate to 4.35% through three rate hikes earlier this year but kept policy unchanged at its June and August meetings while assessing the impact of previous tightening on the economy.

Australia’s 10-year government bond yield climbed above 5.0%, moving near multi-month highs and tracking a rally in global bond yields. Long term borrowing costs in the US, France, and Germany have surged to their highest level in at least a decade on mounting concerns over massive government spending and persistent inflationary pressures. In Australia, bond supply is in focus, with the government selling a new 2038 bond that is expected to attract strong investor demand. Alphabet is also preparing its first Australian debt sale, potentially the country’s largest-ever corporate bond issuance and add to supply in the local debt market. Meanwhile, the Reserve Bank of Australia held its interest rate unchanged at 4.35% last week after three rate hikes earlier this year. Investors now await Thursday’s jobs report for further clues on the policy outlook, with employment expected to rise by 15,000 in July after a strong 76,300 gain in June, while unemployment is forecast to remain at 4.4%.

Australia’s 10-year government bond yield rose above 5%, trading near multi-week highs as the Reserve Bank reinforced a hawkish policy stance. The central bank held its cash rate unchanged at 4.35% for a second consecutive meeting last week, but Governor Michele Bullock said rates might need to rise again as the Strait of Hormuz remained closed and productivity growth stayed weak. RBA Assistant Governor Christopher Kent also said tighter monetary policy was working as designed, although its full effects on activity and inflation would take time. Markets priced around a 70% chance of a hike to 4.60% by early next year, likely marking the end of the tightening cycle. Attention now turns on Thursday’s jobs report, with forecasts pointing to a 15,000 increase in employment in July and a steady unemployment rate of 4.4%. Quarterly wages data are also due on Wednesday, while RBA Deputy Governor Andrew Hauser will also be speaking.