FX.co ★ Australia 10Y Yield Jumps to 5-Month High

Australia’s 10-year government bond yield rose above 5.1%, reaching a five-month high amid a broad selloff across global bond markets. US Treasuries led the decline, driven by mounting concerns over US budget deficits and rising debt levels. Australian bonds came under additional pressure as investors increasingly expect interest rates to stay higher for longer to curb inflation.

Market pricing now implies a 54% probability that the Reserve Bank of Australia will raise its cash rate by 25 basis points to 4.60% on September 29, a sharp jump from just 10% a week earlier. The odds of a further hike to 4.85% stand at 40%. This more hawkish policy outlook has emerged even as economic momentum shows signs of weakening, with net exports and government spending indicating that growth slowed in the second quarter.

The Q2 GDP report, due on Wednesday, is expected to show quarterly growth of only 0.3%, while annual growth is forecast to ease to 1.8% from 2.5%. Even so, core inflation remains elevated at 3.6%, maintaining pressure on the RBA to consider additional rate increases.