FX.co ★ Australia 10Y Yield Hits Highest Since 2023

Australia's 10-year government bond yield has ascended to approximately 4.83%, marking its peak since November 2023. This rise is primarily fueled by increasing speculation of an impending rate hike next month. The anticipation for tighter monetary policy has intensified following last week's robust employment report, prompting the market to accelerate its expectations regarding the Reserve Bank of Australia's (RBA) next action. Focus now shifts to Wednesday's inflation data release, where the trimmed-mean indicator for the December quarter is projected to increase by 0.8% on a quarterly basis. This would raise the annual underlying inflation rate to around 3.3%, exceeding the RBA’s target range of 2–3%. Additionally, NAB data indicates that business sentiment has improved, and capacity utilization has slightly relaxed. However, constraints in critical sectors continue to push the economy towards its limits, maintaining the RBA's concerns about inflation. Current market sentiment suggests a 60% probability of a rate increase in February, up from just 25% the previous week. Notably, for the first time in 15 years, Australia's 2- and 10-year bond yields are leading among the G10 nations, potentially attracting more investor capital inflows.