FX.co ★ Australia 10Y Yield Remains Above 5%

Australia’s 10-year government bond yield held above 5%, hovering near its highest level since late May, as markets continued to anticipate further policy tightening despite weak labor data. June figures showed employment falling by 15,800, contrary to expectations for a 15,000 increase, while the unemployment rate climbed to 4.5%, its highest level in nearly five years, indicating a cooling labor market. Even so, the numbers were not soft enough to completely dispel the prospect of additional tightening by the RBA, with markets assigning roughly a 70% probability to a rate hike to 4.60% by early next year.

At the same time, Australian bond yields followed the move in US Treasuries, as investors questioned whether the US Treasury’s expanded buyback program could deliver a sustained easing of elevated long-term borrowing costs. The fading rally in US bonds pushed yields higher and maintained pressure on global bond markets, while renewed worries about the widening US fiscal deficit and mounting debt burden weighed on the dollar.