Australia’s 10-year government bond yield traded around 5%, stuck in a sideways range near multi-decade highs as investors continued to grapple with inflation risks linked to the Middle East war. Although a ceasefire has mostly been held since early April, efforts to revive peace talks between the US and Iran stalled and energy flows via the Strait of Hormuz remained choked. The energy-supply shock caused by the conflict continued to fuel inflation risks, raising the likelihood that central banks will keep interest rates higher for longer or even hike them. Investors now await Australia’s upcoming March CPI report due on Wednesday, with headline inflation expected to rise 4.7% year-on-year, well above the Reserve Bank’s 2–3% target. Any signs of hotter inflation could solidify bets on a 25-basis-point rate hike at the central bank’s May 5 meeting. Markets are currently pricing in an 80% probability of a third rate hike this year to 4.35%.

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