Australian government bonds are a highly rated sovereign curve from a commodity-based economy. They tend to track US Treasuries while reflecting the Reserve Bank of Australia and China-linked growth. The 10-year is the benchmark maturity, distilling expectations for growth, inflation, and policy, and serving as a reference rate for pricing across the economy.
RBA hikes to 15-year high, but end of tightening cycle in sight
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RBA raises cash rate to 4.60%, a 15-year high The Reserve Bank of Australia lifted its policy rate by 0.25% to 4.60%, the highest since 2011, and kept the door open to more hikes. Higher official rates pull the 10-year government bond yield up, which pushes its price down.
This is the central bank decision that directly sets the tone for Australian bond yields this period.
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Inflation accelerates to 4.0%, keeping pressure on the RBA Australia's consumer price index rose to 4.0% in August from 3.5% in July, driven by a 14.8% jump in fuel prices. Sticky inflation supports the case for higher interest rates, pushing bond yields up and prices down.
Inflation is the key data point that justifies the RBA's hawkish stance and upward pressure on yields.
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Australian 10-year yield poised to fall below US yield The gap between Australian and US 10-year yields has shrunk to about 0.12%, and may turn negative for the first time in over a year. Markets expect the RBA to hike only once more while the Fed raises three more times, so Australian yields could soon fall below US yields, pulling the 10-year yield down and its price up.
This is the main counterweight: it signals the RBA tightening cycle is near its end, which could reverse the recent yield rise.
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Smaller budget deficit reduces government borrowing needs Australia's budget deficit came in at A$22.3 billion, A$6 billion less than forecast, thanks to higher income and lower spending. Less government borrowing means fewer bonds need to be sold, which supports bond prices and keeps a lid on yields.
It shows a fiscal tailwind that partly offsets the upward pressure on yields from monetary tightening.
Q3 2026
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RBA hike to 4.60% pushes 10-year yield to 15-year high
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RBA rate hike and persistent inflation The RBA raised rates to 4.60% as inflation stayed at 4.0%, pushing the 10-year yield to a 15-year high near 5.38%. Higher rates make existing bonds less attractive, so prices fall and yields rise.
This is the main new event of the quarter and directly explains the yield's sharp rise.
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Strong economic data and global bond selling Solid GDP, strong wage growth, and a global bond selloff added upward pressure on Australian yields. When the economy runs hot, investors expect higher rates, which pushes bond prices down.
These forces reinforced the yield rise and are new developments this quarter.
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Middle East tensions Geopolitical tensions in the Middle East added to bond market pressure, likely by raising inflation fears and uncertainty. This contributed to the selloff in Australian government bonds.
A new geopolitical factor that weighed on bond prices during the quarter.
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Smaller budget deficit and shrinking US yield premium A smaller budget deficit means less government borrowing, and a shrinking yield premium over US bonds makes Australian bonds relatively less attractive to sell. Both could eventually pull yields lower.
These are genuine counterweights that could support bond prices, providing a fair balance to the dominant negative drivers.
News & notes movingAU-10Y.GB
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Australian Bond Yields Poised to Fall Below US for First Time in a Year
Australian government bond yields are poised to fall below US government bond yields for the first time in more than a year, after the market anticipated that the monetary policy of the Reserve Bank of Australia, or RBA, is nearing the end of its rate-hiking cycle, while the US Federal Reserve still looks likely to raise rates further. The spread between the yield on 10-year Australian government bonds and that of equivalent US government bonds has narrowed to around 12 basis points, or bps, close to its lowest level since September 2025. Strategists from Barrenjoey Markets and Westpac Banking Corp. expect yields in the two countries to converge to similar levels in the coming months, while National Australia Bank, or NAB, believes the spread could turn negative, meaning Australian bond yields would fall below US yields. Kenneth Crompton, head of interest rate strategy at NAB in Sydney, said the bank's base case still expects the 10-year Australian and US bond yield spread to reverse in 2027, but that if it happens sooner, it would not be considered a major deviation from market conditions. He also expects that if the policy trajectories of the RBA and the Fed diverge as much as anticipated, the spread could fall back to around -20 bps by the end of 2027. Currently, the market expects the Fed to raise interest rates three more times, by 0.25% each, over the next 12 months, while the market expects the RBA to raise rates only once more, reflecting the increasingly clear divergence in monetary policy trajectories between the two countries.
Australia's inflation hits 4% in August after fuel prices surge
The Australian Bureau of Statistics reported that the Consumer Price Index accelerated to 4.0% in August year-on-year, up from 3.5% in July, but still below the 4.1% analysts had expected. On a monthly basis, the headline CPI rose 0.4%, while the seasonally adjusted CPI rose 0.7%. The core CPI, the measure the Reserve Bank of Australia watches closely, stood at 3.6% year-on-year, in line with expectations and unchanged from July. Higher fuel costs remained the main driver, with automotive fuel prices jumping 14.8% in August compared with July amid higher global crude oil prices, pushing transport inflation to 5.6% year-on-year. Housing inflation accelerated to 5.7% from 5.0% in July, with newly built home prices up 5.4%, electricity prices surging 13.2% after government subsidies ended, and rents up 3.6%. The data was released just one day after the Reserve Bank of Australia raised interest rates by 0.25% to 4.6%, a 15-year high and the fourth increase this year. The RBA board said inflation remains too high, driven by domestic price pressures and higher energy prices stemming from the war with Iran.
RBA Raises Rates to 15-Year High of 4.60%, BBH Says Hike to Support AUD/USD
The Reserve Bank of Australia delivered a widely expected 25 basis point hike to 4.60%, a 15-year high, and kept the door open to further tightening, according to Brown Brothers Harriman. AUD/USD initially rallied on the hawkish statement but reversed as Governor Michele Bullock signaled less urgency. BBH highlights that the RBA hike will support AUD/USD.
Australia's central bank raises policy rate to 4.60%, a 15-year high
The Reserve Bank of Australia decided at its monetary policy board meeting on the 29th to raise the policy rate by 0.25% to 4.60%. It was the first rate hike in three meetings and the fourth this year, decided unanimously, and the policy rate surpassed its peak during the COVID-19 pandemic to reach its highest level in 15 years, since late 2011. Citing prolonged inflation, the central bank judged that "further monetary tightening is appropriate." It also expressed concern that the situation in the Middle East remains tense and energy supply disruptions continue. On the future path of the policy rate, it said "further increases may be possible if necessary," stressing its readiness to raise rates again.
Micron Earnings, U.S. Payrolls and RBA Rate Decision Headline Q4's First Week
Micron Technology reports its latest quarterly earnings after the bell on Wednesday, the next test for an AI trade that has shown signs of fatigue in recent months. The $1.2-trillion memory chip maker, a key supplier to Nvidia's AI processors, has seen its shares rise over +280% year-to-date, but they fell more than -6% during the quarter while the Philadelphia Semiconductor Index shed an even steeper -14%. Investors will also get September U.S. nonfarm payrolls on Friday, expected to rise by +100K jobs with unemployment at 4.2%, along with the PCE price index on Wednesday and Eurozone inflation data on Friday. The Reserve Bank of Australia is expected to hike its policy rate by a quarter point on Tuesday, taking it to a 15-year high of 4.6%. Futures pricing suggests a roughly 50/50 chance the Federal Reserve will again hike by a quarter point in October.
MU · Capital · Neutral Micron's quarterly earnings report is the headline event, framed as a test for the AI trade after shares fell over 6% in the quarter.
AU-10Y.GB · Monetary · Positive RBA is expected to hike its policy rate by a quarter point to a 15-year high of 4.6%, pushing Australian bond yields up.
Australia posts A$22.3 billion budget deficit, A$6 billion below forecast
Jim Chalmers, Australia's Treasurer, announced that Australia's budget deficit at the end of the 2025-2026 fiscal year, which ended on 30 June, stood at A$22.3 billion, or US$15.7 billion, equal to 0.8% of gross domestic product. The figure was A$6 billion, or about US$4.2 billion, below earlier forecasts, and lower than the 2026-2027 budget draft Chalmers presented in May, which projected a deficit of A$28.3 billion, or about US$19.9 billion, equal to 1.0% of GDP. Chalmers said the improved fiscal position resulted from higher investment income combined with government spending that came in below what the Treasury had forecast. The disclosure came as the Reserve Bank of Australia's monetary policy committee began a two-day meeting, with the four major banks in agreement that the policy rate will be raised from 4.35% to 4.6%, which would be the highest level since November 2011. Chalmers said inflation is mainly driven by conflict in the Middle East, not by government spending.
AU-10Y.GB · Monetary · Negative RBA expected to raise the policy rate from 4.35% to 4.6%, pushing the 10-year Australian government bond yield up (price down).
Australian Bond Yields Surge to 15-Year High as Market Bets on 84% Chance of RBA Rate Hike
Australian government bonds came under heavy selling pressure, pushing the yield on 3-year bonds up 18 basis points to 5.03%, the highest level since May 2011, or a more than 15-year high. The 10-year yield rose 13 basis points to 5.38%. The selloff tracked a sharp decline in US Treasuries after tensions in the Middle East drove oil prices higher, and the US Treasury bought back fewer bonds than the market expected in the first operation of its expanded buyback program. Inflation pressures also led the market to increase bets that the Reserve Bank of Australia will raise interest rates this month, with Overnight-Indexed Swaps reflecting an 84% chance of a hike, up sharply from 65% on Thursday. Michael Tang, a rates strategist at Commonwealth Bank of Australia, said the market is heavily dominated by a hawkish monetary policy view, and that the factors that could halt the selloff are softer US CPI figures and clarity on Federal Reserve rate increases. Investors are now watching US inflation data due on Friday to assess whether the Fed will raise rates at next week's meeting.
AU-10Y.GB · Monetary · Positive Australian 10Y yield rose 13bp to 5.38% as markets priced an 84% chance of an RBA rate hike.
AU-3Y.GB · Monetary · Positive Australian 3Y yield jumped 18bp to 5.03%, a 15-year high, on hawkish RBA rate-hike expectations.
US-10Y.GB · Monetary · Positive US Treasury yields climbed amid Middle East-driven oil gains and a smaller-than-expected Treasury buyback, with Fed rate-hike bets in focus.
AUD/USD Hits Four-Month Highs on Weak USD, Strong Chinese Inflation
The Australian Dollar resumed its uptrend on Wednesday, hitting fresh four-month highs at 0.7237 against the US Dollar, supported by a weak Greenback and stronger-than-expected Chinese inflation data. The AUD/USD pair later settled around 0.7220. Markets are now focused on Friday's US Consumer Price Index data, which economists at DBS say will be pivotal for next week's Federal Reserve meeting, with a 60% chance of a September rate hike priced in. However, Aussie rallies may be limited by Middle East tensions and rising oil prices, as Iran attacked a US Navy warship and an airbase in Jordan, and the US responded by hitting Iranian oil tankers in the Strait of Hormuz. Chinese consumer inflation bounced to 0.4% in August from a 0.1% contraction in July, beating expectations of 0.3%, while year-over-year CPI accelerated to 0.8% from 0.5%. Additionally, Reserve Bank of Australia Deputy Governor Andrew Hauser called for more action on inflation, leading Rabobank analysts to suggest markets are thinking of rate hikes this month and in November.
AUDUSD.FOREX · Monetary · Positive AUD strengthens on weak USD and strong Chinese inflation, with RBA rate hike expectations adding support.
AU-10Y.GB · Monetary · Positive RBA Deputy Governor calls for more action on inflation, raising expectations of rate hikes, which would push yields up.
US-10Y.GB · Monetary · Negative Weak USD and geopolitical tensions may lead to lower US yields as investors seek safety, though Fed hike expectations could offset.
EFFR.MM · Monetary · Negative Weak USD and expectations of Fed rate hike may be tempered by geopolitical tensions, but overall USD weakness suggests lower yields.
Australian central bank deputy governor to discuss rate hike at this month's board meeting
Reserve Bank of Australia Deputy Governor Hauser said on Thursday that the case for a rate hike is expected to be discussed at the next board meeting on September 28-29, adding that inflation remains elevated and risks are tilted to the upside. Hauser told the Australian Broadcasting Corporation that his concerns about inflation were heightened after seeing the impact of data centers on the economy during a visit to the United States. He noted that the key question for policymakers is whether the three rate hikes implemented this year are sufficient to curb inflation, or whether further measures are needed. With inflation in July exceeding market expectations, markets are now pricing in a 68% probability that the policy rate will be raised by 25 basis points to 4.60% on the 29th of this month. The probability of rates reaching 4.85% by 2027 is 60%. Hauser said that while the stage has not been reached where significant rate hikes are needed to bring inflation back to the central bank's target of 2-3%, a prolonged period above target could require a stronger policy response.
NAB Survey Shows Australian Business Conditions Hit 6-Year Low
National Australia Bank (NAB) released its survey results today (Sept. 8), indicating that Australia's business conditions index fell by 5 points in August to -1 point, marking the first negative reading since the COVID-19 pandemic in 2020 and the lowest in six years. The main factors were soaring costs that heavily squeezed corporate profits, coupled with concerns among businesses that the central bank might raise the policy interest rate again. The business confidence index fell by 1 point to -8 points, significantly below the long-term average of +5 points. Moreover, nearly all sectors experienced a broad slowdown, with the profitability index plunging by 10 points, while the sales index dropped by 5 points to its lowest level since the post-COVID period. NAB noted that the decline in the profitability index warrants close monitoring as it serves as a leading indicator for the overall labor market. It added that the overall survey results clearly signal that the economy is slowing down, while cost pressures and prices continue to weigh. Additionally, cost indicators remained elevated, particularly fuel prices, which rose in August following another escalation of tensions in the Middle East. NAB further pointed out that input cost growth has outpaced price increases by a record margin, reflecting that businesses are facing increasingly severe pressure on profit margins. Meanwhile, persistently high and sticky inflation has led markets to anticipate that the Reserve Bank of Australia (RBA) may need to raise the policy rate for the fourth time this year, potentially as early as its meeting this month.
AU-10Y.GB · Monetary · Negative Survey signals economic slowdown and sticky inflation, leading markets to expect RBA rate hike, which would push yields up, but the bond price falls; however, the yield direction is ambiguous as rate hike expectations could raise yields, but economic slowdown could lower them. Given the article emphasizes rate hike expectations, yield likely rises, but the bond price falls, so direction for yield is pos? Actually, the instruction says for bond yield, state direction of yield: up = pos? No, it says 'state direction of the YIELD (up = yield rises = bond price falls)'. So if yield rises, direction is 'pos'? But the example says 'a rate cut / flight-to-safety → yield DOWN (negative)'. So yield up is positive? Actually, they say 'negative' for yield down, so yield up is positive. But here, rate hike expectations would push yields up, so direction is 'pos'? But the article also says economic slowdown, which could push yields down. The net effect is ambiguous. However, the article explicitly says markets anticipate RBA may raise rates, which would increase yields. So direction is 'pos' for yield. But the bond price falls, but we are judging yield. So I'll set direction 'pos' with aspect 'monetary'.
Housing affordability in Australia has fallen to a record low in fiscal year 2026, as high home prices and rising mortgage interest rates have significantly reduced household borrowing capacity. A report released by realestate.com.au on Saturday (September 5) stated that households with average income (approximately A$125,000 per year) can afford only 12% of homes listed for sale nationwide, the lowest level on record, down from the previous low of 14% in fiscal year 2008. Furthermore, low-income households (approximately A$76,000 per year) can afford only 2% of homes sold over the past year, leaving this group with almost no access to the housing market. The report noted that housing affordability declined after the Reserve Bank of Australia (RBA) raised interest rates three consecutive times in February, March, and May to curb inflation, with higher borrowing costs offsetting income growth and the slowdown in home prices in the latter part of the fiscal year, leading to a nationwide decline in affordability. Housing affordability fell in all Australian states in fiscal year 2026, with South Australia becoming the least affordable state in the country, surpassing New South Wales. Median-income households in South Australia can afford only 7% of homes for sale, while the median home price in Adelaide, the state capital, is as high as A$940,000.
Australia's Q2 GDP grows 2.1%, beating expectations, driven by private demand and mineral exports
The Australian Bureau of Statistics (ABS) reported that GDP in the second quarter of 2026 expanded 2.1% year-on-year, higher than the 1.8% forecast by analysts, supported by private demand and exports of mineral goods. On a quarterly basis, GDP grew 0.4%, also above the expected 0.3%. Household spending remained sluggish, rising only 0.4% due to higher energy prices stemming from the conflict in the Middle East. The strong figures pave the way for the Reserve Bank of Australia (RBA) to continue tightening monetary policy, with July inflation at 3.5%, above expectations. The RBA expects inflation to slow to its 2-3% target range by late 2027.
Global Bonds Sell-Off Sends Yields to Nearly Two-Decade High
Global bond yields have surged to their highest levels in nearly two decades, as higher oil prices stoke inflation concerns and investors increase bets that the Federal Reserve will raise interest rates. The Bloomberg Global Aggregate Treasury Index rose for a fourth consecutive day to 3.72%, the highest since mid-2008. Meanwhile, the yield on 10-year Japanese government bonds hit 3% for the first time since 1996, and Australia's 10-year yield reached its highest since 2011. Pressure comes from Fed Chair Kevin Warsh's remarks at Jackson Hole reaffirming a stance to curb inflation, as well as US-Iran tensions that could affect the Strait of Hormuz, and concerns over government spending in major economies. Analysts suggest the market is signaling that policy rates may need to stay higher for longer if inflation remains sticky.
Major banks see 3 of 4 raising rates again this year on high inflation
Of Australia's four major banks, Commonwealth Bank (CBA), National Australia Bank (NAB), and ANZ expect further rate hikes this year. July's inflation data came in stronger than expected, reigniting concerns that price pressures remain robust. NAB expects the Reserve Bank of Australia (central bank) to move to raise rates at its next policy meeting in September, and sees the possibility of another hike in November if economic activity remains resilient. CBA and ANZ forecast a November hike, while Westpac maintains its view of holding steady. CBA's head of Australian economics, Belinda Allen, noted that price momentum has re-accelerated in underlying and domestically driven items, with the pace of disinflation stalling. She expects a November hike but said it could be brought forward to September. The RBA has held the policy rate steady for two consecutive meetings this month.
Australian Core Inflation Rises 0.5% in July, Beating Expectations, Raising Rate Hike Risks
The Australian Bureau of Statistics released the July Consumer Price Index (CPI) on the 26th, which rose 1.0% month-on-month, exceeding market expectations of a 0.8% increase. The rise was mainly driven by higher fuel and travel costs. On an annual basis, the CPI slowed from 3.8% to 3.5% due to the exclusion of large increases from the previous year, but still beat the expected 3.3% rise. The trimmed mean, which indicates core inflation, rose 0.5% month-on-month, surpassing the expected 0.3% increase, raising the risk of further rate hikes. The annual growth rate was 3.6%. The Reserve Bank of Australia has implemented three rate hikes this year to bring core inflation back to its 2-3% target.
Australia's central bank divided before decision to hold rates at 4.35%
The Reserve Bank of Australia released minutes from its August meeting showing debate among the nine board members, who were split into two camps before unanimously deciding to keep the policy rate at 4.35% to await further economic data. One side argued that a rate hike might be needed to curb inflation risks that could rebound from Middle East conflict and global crude oil prices, while the other side viewed the current rate as sufficiently tight and saw time to wait for economic developments. The board identified key risks that could push inflation higher, including the global investment wave in AI and data centres, weak labour productivity, and Middle East tensions, with Brent crude jumping to 92 dollars a barrel after the United States expanded sanctions on Iran. Financial markets price only a 13% chance that the RBA will raise rates to 4.60% at its next meeting, but reflect a 67% probability of a hike by February next year.
Australia Q2 wages rise 3.2% Y/Y; RBA's Hauser warns inflation risks could force rate hikes
Australia's seasonally adjusted Wage Price Index increased 3.2% year-over-year in the second quarter of 2026, matching market expectations and marking the weakest annual wage growth since the fourth quarter of 2024. On a quarterly basis, wages grew 0.8%, maintaining the steady pace seen over the past four quarters. In a Wednesday address, Reserve Bank of Australia Deputy Governor Andrew Hauser issued a hawkish warning, stating that inflation remains too high and that monetary policy may need to tighten further if upside price risks materialize. Hauser cited escalating Middle East tensions, global AI-driven investment, and soft domestic productivity as core inflationary threats. The RBA has already raised interest rates by 75 basis points year-to-date, though it opted to hold its benchmark cash rate at 4.35% for a second consecutive meeting. Following the RBA's comments and the wage data release, the benchmark S&P/ASX 200 Index slipped 28 points, or 0.3%, to 9,042 in early Wednesday trading, extending its losing streak to a sixth session and touching a two-week low, while the Australian dollar retreated below $0.71 while remaining near a ten-week high.
Australia's central bank warns further hike quite possible after holding rates steady
Australia's central bank held its cash rate steady at 4.35% for a second straight meeting but warned it might hike again if needed to control inflation. Reserve Bank of Australia Governor Michele Bullock said she personally thought it was quite possible that rates may need to go up again, keeping alive the risk of a fourth rate increase this year. The RBA said aggregate demand needed to stay subdued to reduce capacity pressures and it would do what was necessary to bring inflation back to target, including increasing the cash rate target further if upside risks materialise. Swaps now imply around a 50% chance of a rate increase in November, while pricing in an 80% likelihood of a move by early next year. Updated RBA forecasts showed inflation is now expected to move back to the 2% to 3% target band in the second half of next year, with consumer price inflation projected to ease to 3.6% by the end of the year from 3.9% in the second quarter and to 2.6% by the end of 2027.
RBA holds rate at 4.35% for second straight meeting
The Reserve Bank of Australia has kept its policy rate unchanged at 4.35% for a second consecutive meeting, in line with market expectations, amid persistent inflationary pressures while the labour market and property sector show signs of slowing. The RBA said the board remains focused on preventing high inflation from becoming entrenched in the economy and stands ready to take further action, including raising rates again if inflation risks intensify. The RBA also released economic forecasts in its Statement on Monetary Policy, projecting that headline and underlying inflation will only return to 2.5%, the midpoint of the 2–3% target band, by early 2028.
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