In response to the release of new PMI survey data, Australia's 10-year government bond yield has climbed to approximately 4.23%. The May figures indicate that the private sector in the country has expanded at its second-fastest pace in ten months. This expansion was driven by a three-month high in services growth, while manufacturing growth remained stable. These encouraging PMI figures have provided some reassurance about Australia's economic stability, following recent weaker data that had increased expectations for short-term interest rate cuts.
However, the bond yields might face downward pressure due to escalating geopolitical tensions. Over the weekend, the United States conducted airstrikes on three Iranian nuclear sites, demonstrating its direct involvement in the ongoing conflict between Israel and Iran. This development has further spurred an increase in oil prices. As Australia is a significant commodity exporter, this scenario could lead to a resurgence of inflationary pressures. Consequently, this might propel yields higher as markets reevaluate the anticipated trajectory of interest rates.
