Wages and employment will now drive near-term Australian bond moves

Australia’s bond yield discount relative to US Treasuries has almost disappeared after the Reserve Bank of Australia (RBA) delivered a surprise hawkish tone alongside its first interest rate cut in four years.
The yield on 10-year Australian government bonds climbed to within one basis point of US Treasuries on Tuesday. This marks a significant shift from mid-January when the spread between the two was as wide as 24 basis points. The last time Australian and US 10-year yields were at parity was in December.
The RBA’s decision to lower the cash rate target came with a warning that easing monetary policy too quickly could risk stalling progress in reducing inflation. The central bank’s cautious tone prompted traders to revise their forecasts, cutting back expectations for additional rate reductions this year by nearly 25 basis points.
Australia’s bond yield discount versus US Treasuries is close to vanishing after Tuesday’s hawkish central bank interest-rate cut prompted investors to rethink the outlook for the nation’s monetary policy https://t.co/GA4NJiGcHV
— Bloomberg (@business) February 18, 2025
“With the RBA out of the way, wages and employment will be key to near-term Australian bond moves,” Prashant Newnaha (pictured above), senior rates strategist at Singapore’s TD Securities, was quoted as saying in a Bloomberg report.
“Aside from data, 10-year Australian notes are rich for currency-hedged investors compared with their domestic benchmarks. Together our bias is for Australian 10-year notes to underperform other markets in the near term.”
The shrinking yield gap underscores changing investor sentiment as markets reassess the trajectory of Australia’s monetary policy. With global central banks, including the US Federal Reserve, weighing their next moves, the performance of Australia’s bond market will remain closely tied to domestic labour market data and inflation trends.
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