Australia’s 10-year government bond yield slipped below 5.4%, pulling back from its highest level since mid-2011, after August inflation data came in softer than expected and tempered expectations of further policy tightening. The monthly CPI rose 0.4%, slightly under the 0.5% consensus forecast, while the annual rate accelerated to 4% from 3.5% in July, still short of the anticipated 4.1%.
The trimmed-mean measure of core inflation increased 0.2% month-on-month, below the projected 0.3%, though annual core inflation held at 3.6% for a third consecutive month, remaining above the Reserve Bank of Australia’s 2–3% target range. That persistent overshoot has been a key factor behind the RBA’s decision to raise the cash rate to a 15-year high of 4.60% in September.
The modest downside surprise in the data prompted traders to scale back the implied probability of another rate hike in November to 20%, down from 36% prior to the release. Markets now see the next likely increase in March rather than February. Even so, global bond yields stayed elevated, supported by ongoing inflation risks from higher oil prices and expectations of continued monetary tightening by the US Federal Reserve.
