FX.co ★ AUS 10Y Yield Falls Despite Hawkish RBA

Australia’s 10-year government bond yield hovered around 4.7%, close to a four-month low, as declining oil prices and rising expectations of further US rate hikes offset the impact of the Reserve Bank of Australia’s restrictive policy stance.

Minutes from the RBA’s June meeting indicated that policymakers agreed interest rates must remain at restrictive levels to dampen excess demand and return inflation to target, even as economic growth slows. The board also reiterated it stands ready to raise rates again if necessary, noting that developments in the Middle East continue to present upside risks to inflation.

Nonetheless, the recent pullback in oil prices has prompted investors to scale back the perceived likelihood of another RBA rate increase this year to about 40%, while markets have also begun to price in the possibility of rate cuts from around mid-2027.

At the same time, growing expectations of additional US rate hikes have supported relative demand for Australian bonds, allowing them to outperform US Treasuries and narrowing the yield premium. The Federal Reserve’s more hawkish tone this month has led markets to factor in the prospect of a US rate hike as soon as September.