Australia 10Y Yield Rises from Multi-Week Low

Australia’s 10-year government bond yield held above 5.2%, after rebounding from a five-week low as hawkish commentary from the central bank boosted expectations of another interest rate hike. RBA Deputy Governor Andrew Hauser said tighter monetary policy was working, but warned that the inflation outlook remained “materially worse” partly due to elevated oil prices. Hauser stressed the need to anchor inflation expectations ahead of the RBA’s November 3 policy meeting, where policymakers will consider whether to raise rates for a fifth time this year. However, he also acknowledged that higher interest rates and fuel costs were slowing the economy. Markets subsequently doubled the probability of a quarter-point rate hike in November to 64%. Attention now turns to third-quarter inflation data due next week, with core inflation is expected to rise 1.0% from 0.9% previously, keeping the annual pace at 3.5%, well above the RBA’s target range.

Australia’s 10-year government bond yield traded below 5.3%, struggling to recover from a recent five-week low as investors awaited further clues on the policy outlook. Focus is on RBA Deputy Governor Andrew Hauser, who is due to speak this week and could provide insight into the prospects for a fifth rate hike this year. An RBA official recently noted that the labor market may be cooling faster than anticipated, though the next inflation report on October 28 remains key to the policy outlook. Core inflation in the third quarter is expected to rise above the RBA’s 2–3% target and its 3.3% forecast. Governor Michele Bullock and other officials will face lawmakers that day, offering an opportunity to address the latest figures. Markets now price in roughly a one-in-three chance of a November hike, rising to 56% for December. Meanwhile, elevated oil prices amid ongoing hostilities in the Middle East and Eastern Europe, heightened inflation concerns and pushed global yields higher.

Australia’s 10-year government bond yield fell to around 5.2%, hitting a five-week low after a surprisingly soft jobs report prompted investors to pare back wagers on further rate hikes. The economy shed 39,300 jobs, the biggest monthly fall since February last year, defying expectations for a 20,000 gain. The jobless rate also stayed at a five-year high of 4.7%, above the 4.6% forecast, with the previous month revised up from an initial 4.6% reading. The figures suggested the labor market may be loosening after the Reserve Bank of Australia raised its cash rate by 1 percentage point to 4.60% this year to rein in inflation, one of the most aggressive tightening cycles among developed economies. Markets now see less than a 10% chance of a November hike, down from 35% earlier, while the odds of a December move fell to 30% from 60%. Focus now turns to RBA Governor Andrew Hauser’s speech this week and Q3 CPI data due later this month for further clues on the central bank’s policy outlook.