Australia 10Y Yield Jumps to 5-Month High

Australia 10-year government bond yield climbed above 5.1%, hitting a five-month high amid a broad selloff in global bond markets. Treasuries led the rout amid growing concerns over US budget deficits and debt levels, while Australian bonds faced additional pressure from expectations that interest rates may need to remain elevated for longer to bring inflation under control. Markets now see a 54% chance of the RBA raising its cash rate by 25 bps to 4.60% on September 29, sharply higher than 10% a week earlier, while the probability of another hike to 4.85% stands at 40%. The more hawkish policy outlook comes despite signs of weaker economic momentum, with net exports and government spending suggesting the economy slowed in the second quarter. The Q2 GDP report, due Wednesday, is expected to show growth of just 0.3% quarter-on-quarter, while annual growth is forecast to slow to 1.8% from 2.5%. Still, core inflation remains high at 3.6%, keeping pressure on the RBA to hike rates again.

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