AUS 10Y Yield Moves Near Multi-Week Highs

Australia’s 10-year government bond yield traded around 5%, moving near multi-week highs as markets assessed hotter-than-expected July inflation data. The monthly CPI rose 1.0% in July from June, above forecasts for a 0.8% increase, while annual inflation eased to 3.5% from 3.8% but remained above expectations of 3.3%. Meanwhile, the trimmed mean measure of core inflation increased 0.5% in the month, above forecasts of 0.3%, leaving annual underlying inflation at 3.6%. The stronger-than-expected figures came amid repeated warnings from the Reserve Bank that inflation remains too high and that risks remain pointed upwards. The RBA has already raised interest rates three times this year in an effort to get inflation back to target, while Governor Michele Bullock said after the latest meeting that another increase was “quite possible.” Markets raised the probability of a rate hike next month to 27% from 17%, while a move by February next year is now priced at 80%.

Australia’s 10-year government bond yield remained above 5%, trading sideways near multi-week highs as markets weighed the RBA’s August meeting minutes. While the Board judged the current cash rate was sufficiently restrictive to bring inflation back to target within a reasonable timeframe, several members saw a meaningful risk that inflation could prove more persistent than expected. The RBA held rates at 4.35% for a second straight meeting two weeks ago after three hikes earlier this year, but policymakers warned of further tightening if inflation risks materialize. Still, weak jobs data has reduced expectations for an immediate hike, with markets pricing only a 13% chance of a September increase, while seeing around a 67% probability of a hike by February 2027. Investors now await monthly inflation data on Wednesday, with headline inflation expected to ease to 3.2% from 3.8% despite a 0.8% monthly rise, while the trimmed mean is forecast to edge down to 3.5% from 3.6%.

Australia’s 10-year government bond yield remained above 5%, trading near its highest level since late May as higher US Treasury yields kept volatility in global bond markets. US Treasury yields resumed their advance as investors questioned whether the Treasury’s expanded buyback program could provide lasting reprieve from elevated long-term borrowing costs, reinforcing concerns over the widening US fiscal deficit and heavy debt burden. In Australia, softer labor market data failed to fully eliminate expectations for further RBA tightening, with markets pricing a 68% chance of a rate hike to 4.60% by early next year. Meanwhile, strong demand at government debt auctions, highlighted continued investor appetite for local bonds. The government sold A$13 billion of a new 2038 bond at a 5.17% yield, attracting A$61.97 billion in bids, while another A$5.5 billion bond sale also drew orders exceeding A$18 billion.