Australia’s 10-year government bond yield held steady at 4.84%, near an over two-year high, underpinned by a hawkish shift in outlook from the Reserve Bank. On Tuesday, the RBA raised its cash rate by 25 bps to 3.85% as expected, marking the first hike in more than two years, citing persistent inflation pressures and stronger-than-expected economic growth. The central bank also warned that inflation is likely to remain above its 2-3% target range for some time and may not return for at least another one to two years, even with a projected cash rate increase to 4.3%. This prompted investors to ramped up bets for a follow-up hike in May, which is now priced in at around 80%, with a third move seen as increasingly likely in the second half of the year. On the economic front, Australia’s trade surplus widened slightly more than expected in December, as exports rose while imports dropped.
