Summary:
Australia’s yield curve tells a story of measured central bank policy and market confidence. The 10-year yield (blue line) currently sits around 4.3%, while the 3-year (red line) trades near 3.5%, maintaining a healthy positive spread of roughly 80 basis points.The journey since 2019 shows the RBA’s steady hand. Both yields collapsed to historic lows during the pandemic – the 3-year hit nearly zero while the 10-year bottomed around 0.5%. The recovery has been gradual and controlled, with yields rising in tandem rather than fighting each other. Most telling is the spread behavior (gray area). After widening dramatically during the pandemic uncertainty, it’s now settled into a normal, stable pattern. This suggests bond investors trust the RBA’s policy path and aren’t expecting any nasty surprises. The curve shape indicates healthy expectations for gradual economic normalization without major inflation scares or recession fears.
The US paints a far more dramatic picture of policy uncertainty and market anxiety. Current levels show the 10-year (blue) around 4.4% and the 2-year (green) near 4.1% – a modest positive spread that masks the turbulent journey to get here. The standout feature is the violent spread compression and inversion periods (gray area going negative). From mid-2022 through much of 2023, short rates exceeded long rates – a classic recession warning that had markets on edge. The 2-year yield actually peaked above 5% while the 10-year struggled to keep pace, creating an inverted curve that screamed economic stress.
Unlike Australia’s smooth progression, US yields have whipsawed dramatically. The recovery from pandemic lows was explosive, then yields chopped sideways with massive volatility as markets wrestled with Fed policy signals, inflation surprises, and recession fears.
Figure 1: Australia 3 and 10-year Bond Yield Spread
Figure 2: US 2 and 10-year Bond Spread
To learn more about yield curves and their predictive power, visit this article or this one.