Australia 10Y Yield Falls to 7-Week Low

Australia’s 10-year government bond yield fell below 5.2%, hitting a seven-week low as a tech-led global equity selloff spurred demand for safe-haven assets. Concerns over the enormous capital requirements of AI development and the sustainability of heavy data centre investment fueled fears that a slowdown in spending could weigh on economic growth. This prompted a rally in US Treasuries that spilled over into the Australian bond market. The decline came despite oil prices topping $113 a barrel, raising concerns over renewed inflationary pressure. A top RBA official warned that the inflation outlook remained materially worse, partly due to elevated oil prices, and stressed the need to anchor inflation expectations ahead of the November 3 meeting, where policymakers will consider a fifth rate hike this year. Markets currently imply a 64% chance of a quarter-point increase in November. Attention now turns to Q3 inflation data due next week for further clues on the policy outlook.

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.