Summary:
Australian government bond yields remained relatively stable through October, with the 10-year yield holding near 4.3% and the 3-year yield around 3.2%. The yield spread between the two maturities has widened modestly, hovering close to 1.0%, indicating a gradual steepening of the curve. This shift suggests improving confidence in medium-term growth prospects as markets continue to price in the Reserve Bank of Australia’s extended pause and the possibility of future rate cuts in 2026. Despite this, yields remain elevated relative to pre-pandemic levels, reflecting persistent inflation risks and resilient domestic demand.
In contrast, the US yield curve has shown tentative signs of normalisation after a prolonged inversion. The 2-year Treasury yield has eased to around 4.6%, while the 10-year yield is near 4.9%, narrowing the negative spread to roughly -0.3%. The curve’s movement reflects shifting market expectations that the Federal Reserve has concluded its tightening cycle, with attention now turning to the timing and pace of policy easing in 2026. The modest steepening signals reduced recession fears but ongoing caution amid mixed economic data and persistent inflationary pressures.
Overall, both markets show gradual steepening trends, pointing to a potential turning point in the global rate cycle as investors reassess the balance between growth risks and monetary easing expectations.
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.