Australia’s 10-year government bond yield fell to around 4.69% on Thursday after a two-day rise, despite growing expectations of further monetary tightening. Traders are now pricing in an 80% probability of a 25-basis-point rate hike in May, following stronger-than-expected inflation data for January. The closely watched trimmed mean inflation has remained above the Reserve Bank’s 2-3% target band for seven consecutive months, increasing the risk of a high outcome for the first quarter. Markets are also factoring in roughly 40 basis points of tightening over the course of the year, although most analysts expect the cash rate to peak at 4.10%, as this is close to levels seen during the post-pandemic inflation surge. Meanwhile, Governor Michele Bullock has emphasized the need for patience in addressing sticky inflation, noting that balancing price stability with a tight labor market makes policy decisions more challenging.
