Australia 10Y Yield Retreats from 15-Year Highs

Australia’s 10-year government bond yield held below 5.4% after pulling back from 15-year highs, tracking a sharp decline in US Treasury yields. Strong demand at US government bond auctions pushed Treasury yields lower, offering some relief to global markets after weeks of heavy selling. Oil prices also declined after President Trump’s comments on productive US-Iran talks eased concerns over an escalation in tensions. This eased fears of energy-driven inflation and higher-for-longer interest rates. Focus now turns to Australia’s September employment report due next week, following an unexpected rise in the unemployment rate to 4.6% in August. A further increase in joblessness would strengthen the case against another RBA rate hike after last month’s increase lifted the cash rate to 4.60%. Markets imply around a 30% chance of a hike in November, rising to 46% in December. The RBA’s October 13 meeting minutes and the September-quarter CPI report later this month will also be in focus.

Australia’s 10-year government bond yield traded around 5.4%, near its highest level since mid-2011, tracking elevated US Treasury yields amid persistent energy-driven inflation concerns. The 10- and 30-year US Treasury yields traded near levels not seen since 2002, pulling global long-term yields higher, as oil prices remain elevated, raising inflationary risks and expectations for tighter monetary policy. In Australia, markets reduced the odds of another rate increase by the Reserve Bank in November to 20% from 36% previously after August inflation came in slightly below forecasts. The next hike is now seen more likely in March rather than February. However, core inflation remained above the RBA’s 2–3% target band, a key factor behind the central bank’s decision to lift rates to a 15-year high of 4.60% in September. Meanwhile, higher US yields have narrowed the yield premium on Australian debt to its smallest in a year as expectations for monetary policy in the two economies diverge.

Australia’s 10-year government bond yield fell below 5.4%, retreating from its highest level since mid-2011, as August inflation figures undershot forecasts, trimming bets of further policy tightening. The monthly CPI rose 0.4%, below the expected 0.5%, while the annual pace accelerated to 4% from 3.5% in July but remained below the 4.1% forecast. The trimmed-mean measure of core inflation rose 0.2% month-over-month, also below the 0.3% forecast, although annual core inflation held at 3.6% for a third straight month and remained above the RBA’s 2–3% target band, a key factor behind the central bank’s decision to lift rates to a 15-year high of 4.60% in September. The marginal inflation miss led traders to cut the odds of another hike in November to 20% from 36% before the data, while the next increase is now seen more likely in March rather than February. Meanwhile, rising inflation risks from elevated oil prices and the Federal Reserve’s tightening outlook kept global yields higher.