Australia’s 10-year government bond yield dropped to 4.64%, its lowest level since early December, as investors sought safe-haven assets amid escalating tensions in the Middle East. Over the weekend, the US and Israel launched strikes against Iran, prompting Tehran to retaliate with missile attacks on US military bases across the region.
Yields were further pressured by strong demand for Australian government debt. Investors are increasingly drawn to Australian bonds, viewing the country as having relatively limited exposure to AI-related economic risks, while also pricing in a persistently hawkish stance from the Reserve Bank of Australia (RBA). Following last week’s hotter-than-expected inflation data, markets now assign an 80% probability to another interest rate hike in May.
Market participants are looking ahead to Wednesday’s release of fourth-quarter GDP figures for additional insight into the economy’s health and the likely trajectory of RBA policy. At the same time, Governor Michele Bullock has underscored the need for patience in tackling stubborn inflation, stressing that the challenge of maintaining price stability while preserving a tight labor market is making policy decisions more complex.
