Australia’s 10-year government bond yield hovered around 5%, moving sideways near multi-decade highs as investors continued to assess inflation risks stemming from the conflict in the Middle East. While a ceasefire has largely held since early April, efforts to revive peace talks between the US and Iran have stalled, and energy shipments through the Strait of Hormuz remain constrained. The resulting energy supply shock has kept inflation pressures elevated, increasing the likelihood that central banks will maintain higher interest rates for longer, or even raise them further.
Investors are now focused on Australia’s March CPI report, due Wednesday, with headline inflation forecast to rise 4.7% year-on-year—well above the Reserve Bank’s 2–3% target range. Any upside surprise could reinforce expectations of a 25-basis-point rate hike at the RBA’s May 5 meeting. Futures markets currently assign an 80% probability to a third rate increase this year, taking the cash rate to 4.35%.
