Australia’s 10-year government bond yield traded around 4.7%, remaining near four-month lows as falling oil prices and wagers of US rate hikes outweighed the RBA’s restrictive policy stance. Minutes from the Reserve Bank’s June meeting showed policymakers agreed interest rates should remain restrictive to curb excess demand and bring inflation back to target even as economic growth slowed. The board also reiterated they are prepared to raise rates further if needed as developments in the Middle East still pose upside risks to inflation. Despite the hawkish tone, the recent retreat in oil prices have led investors to pare the risk of another rate hike this year to around 40%, with markets also starting to price in rate cuts as early as mid-2027. Meanwhile, mounting bets on US rate hikes have helped Aussie bonds outperform Treasuries, shrinking the yield premium. The Federal Reserve adopted a more hawkish stance this month, prompting markets to price in a rate hike as early as September.

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