Australia’s 10-year government bond yield fell below 5%, easing from multi-decade highs to a two-week low as investors grew increasingly concerned about the Middle East war’s impact on the global economy. Now in its fifth week, the conflict has rattled global markets and raised fears of a simultaneous spike in inflation and slowdown in growth.
While hopes of a possible de-escalation emerged after President Trump said US forces could end operations in Iran within two to three weeks, oil prices remained supported on concerns that a US withdrawal could leave the Strait of Hormuz unsecured, raising risks to one of the world’s key oil shipping routes. For Australia, this raises the risk of further policy tightening, with inflation already above target before the war began. Markets currently imply around a 65% chance the central bank could hike again at its next meeting on May 5, but have lowered the expected peak to 4.66% from 4.75% early in the week.
