FX.co ★ Australia 10Y Yield Retreats from 2011 Highs

Australia’s 10-year government bond yield slipped below 5.4%, retreating from its highest level since mid-2011, even as the central bank delivered a fourth interest rate increase this year. In a unanimous decision, the Reserve Bank of Australia raised the cash rate by 25 basis points to 4.60%, in line with expectations, lifting the policy rate to its highest level in roughly fifteen years.

In total, the central bank has tightened by 100 basis points so far this year in an effort to rein in stubborn inflation, exacerbated by higher global energy prices linked to the conflict in the Middle East. Interest rate swaps implied a 56% probability of another hike in November and a 60% chance of an additional move in December.

Market attention now turns to August inflation data, due on Wednesday, for further signals on the future policy path. At the same time, Australian bonds remained under pressure amid a broader global fixed-income selloff, driven by elevated inflation risks from rising oil prices. US Treasury yields also climbed to new multi-year highs as expectations solidified for further interest rate increases by the Federal Reserve.