Australia’s 10-year government bond yield remained above 5%, hovering near multi-decade highs as markets assessed the federal government’s 2027 fiscal budget and associated funding plans. The bond issuance program for the coming year was set at A$125 billion, below market expectations and only slightly higher than in the current fiscal year. Combined with stronger fiscal settings and comparatively low public debt by global standards—factors that underpin Australia’s AAA sovereign credit rating—this could help draw increased foreign investment into the debt market.
At the same time, the budget offers limited relief on inflation, leaving the door open for further monetary tightening by the central bank. Recent economic data had little effect on expectations: wage growth in the first quarter matched forecasts, and while the annual rate eased slightly, it remained consistent with persistent labor cost pressures, underscoring the durability of inflation. Markets continue to price roughly a 20% probability of a June rate increase to 4.35%, while expectations for an August move to 4.60% have risen to more than 80%.
