Australia’s 10-year government bond yield climbed toward 5.4%, approaching its highest level since mid-2011, as it followed a global bond selloff driven by strong US economic data, rising oil prices, and expectations of prolonged monetary tightening by major central banks. Robust US business activity has reinforced the likelihood of another Federal Reserve rate hike, sending US Treasury yields sharply higher.
Oil prices have also risen, intensifying inflation concerns after Iran cast doubt on progress in Middle East peace talks, dampening hopes for a reopening of the Strait of Hormuz.
Domestically, a mixed Australian labor-market report has reduced the chances of a Reserve Bank of Australia rate increase in September. The unemployment rate edged up to 4.6%, above expectations for a steady 4.5% and the highest level since late 2021, even as the economy added 39,500 jobs, almost double the forecast gain of 20,000.
Markets now assign an 86% probability to a 25-basis-point hike in September, which would take the cash rate to 4.60%, down from a 95% probability before the jobs data. The odds of an additional move in November have also declined, to 44%.