Australia’s 10-year government bond yield slipped to around 4.69% on Thursday, retracing after a two-day climb, even as expectations of further monetary tightening continued to build. Markets are now assigning an 80% probability to a 25-basis-point rate increase in May, following stronger-than-expected January inflation data. The closely watched trimmed mean measure has stayed above the Reserve Bank of Australia’s 2–3% target band for seven consecutive months, heightening the risk of a stronger inflation print for the first quarter.
Investors are also pricing in roughly 40 basis points of additional tightening over the remainder of the year. However, most analysts still forecast the cash rate to peak at around 4.10%, roughly in line with levels reached during the post-pandemic inflation surge. In recent remarks, Governor Michele Bullock stressed the need for patience in dealing with persistent inflation, highlighting that the task of restoring price stability is made more complex by the ongoing tightness in the labor market.
