Australia’s 10-year government bond yield rose to 4.96%, its highest level since October 2023, as investors shifted into safe-haven assets amid the escalating war in the Middle East. The conflict has now entered its second week, with attacks continuing across Iran and other countries in the region. The resulting spike in energy prices has intensified inflation concerns among central banks, potentially supporting a more hawkish policy stance.
RBA Governor Michele Bullock said last week that the central bank is “very alert” to the conflict’s potential impact on inflation expectations and stands ready to raise interest rates if needed. Traders currently assign roughly a 30% probability to a rate hike later this month, but fully price in an increase by May, as the labor market remains tight and inflation pressures persist.
