Australia’s 10-year government bond yield surged to a 15-year high of 5.223% on Wednesday, driven by stronger-than-expected economic growth and persistent inflation pressures.
The Reserve Bank of Australia’s (RBA) benchmark yield rose 0.7% as quarterly GDP expanded 0.4% in the second quarter, outpacing forecasts of 0.3%. Annual economic growth accelerated to 2.1%, compared with an expected 1.8%. While headline inflation eased to 3.5% in July from 3.8%, trimmed mean inflation held steady at 3.6%, remaining above the RBA’s 2%-3% target range.
Market pricing shifted sharply, with the implied probability of a fourth RBA rate hike at the September meeting increasing to 57%, up from 48%. A November increase is now considered more than fully priced in, and the likelihood of an additional hike by the first quarter of 2027 rose to 82%, from 62% previously.
Global factors also contributed to the sell-off in bonds, including escalating U.S.-Iran tensions and a surge in oil prices that revived inflation risks worldwide. Japanese, British, and U.S. government bond yields followed Australia’s lead, while the S&P/ASX 200 stock index declined as rising yields weighed on rate-sensitive equities, reflecting a risk-off tone in markets.
