Australia’s 10-year government bond yield was trading near 4.9%, close to a five-week high, as escalating tensions in the Middle East pushed oil prices higher and renewed inflation worries. The United States launched another round of strikes on Iranian coastal military assets and reimposed a naval blockade on Iran.
At the same time, Australian inflation expectations have eased for a third consecutive month, reaching a six-month low of 4.7% in July 2026, down from 5.5% in June. Even so, money markets are pricing in only about a 20% probability of an interest rate increase in August, rising to roughly 60% by December. Investors are now focused on key employment and inflation releases later this month for clearer signals on the Reserve Bank’s policy path.
In parallel, softer inflation data in the United States has reduced expectations of an imminent Federal Reserve rate hike, pushing US Treasury yields lower and in turn limiting upward pressure on Australian government bond yields.
