Australia’s 10-year government bond yield fell below 4.8%, near four-month lows after a mixed inflation report did little to shift expectations for further interest rate hikes. Headline consumer prices fell 0.7% in May from the previous month, pulling annual inflation down to 4.0% from 4.2% and marking the slowest pace in three months. However, underlying price pressures remained firm, with the trimmed mean inflation rising 0.4% on the month, above forecasts, lifting the annual core rate to 3.6%. The mixed inflation data has left markets divided, pricing roughly 50% odds of another rate hike, with any move seen more likely later in the year rather than at the August meeting. Meanwhile, progress in ongoing US-Iran peace talks and increased shipping activity through the Strait of Hormuz helped ease inflation concerns. The hawkish outlook for US interest rates has also helped Australian bonds outperform Treasuries, adding downside on Aussie’s yield premium.

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