| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.324 | 3.335 | -0.011 |
| Australian 10-year bond (%) | 4.215 | 4.204 | 0.011 |
| Australian 30-year bond (%) | 4.921 | 4.907 | 0.014 |
| United States 2-year bond (%) | 3.923 | 3.948 | -0.025 |
| United States 10-year bond (%) | 4.395 | 4.399 | -0.004 |
| United States 30-year bond (%) | 4.9141 | 4.8948 | 0.0193 |
Overview of the Australian Bond Market
Australian government bonds gained on Monday as investors sought safety following Iran’s retaliatory strike on a U.S. military installation, echoing global flows into sovereign debt amid renewed geopolitical instability in the Middle East.
The move was compounded by dovish signals from the Reserve Bank of Australia (RBA), which raised expectations that interest rate cuts could begin as early as the fourth quarter. The yield on 10-year government bonds fell to 4.22%, its lowest in over a month, reflecting both global risk aversion and growing conviction that monetary policy may ease in the months ahead.
The three-year bond yield declined as much as 8 basis points to 3.33%, while two-year yields—more sensitive to central bank expectations—slipped 7 basis points to 3.41%. Markets are currently pricing in nearly 90 basis points of easing over the next year, with a modest probability (~25%) of the first cut occurring in October. A December move remains the base case among traders.
The RBA held its cash rate steady at 3.85% earlier this month, signaling a more patient stance as it awaits clearer signs of a sustainable downtrend in inflation. Governor Michele Bullock noted that while inflation risks remain, the economy’s weaker-than-expected growth and a softening labor market allow for greater flexibility in policy settings.
Bond investors are now watching closely for further clues on the timing of the RBA’s expected rate cuts, particularly as geopolitical developments threaten to disrupt commodity markets and global growth.
Overview of the US Bond Market
Treasuries gained on Monday following Iran’s retaliatory attack on a US air base, adding to demand for US government debt as a haven from escalating tensions in the Middle East.
Renewed expectations that the Federal Reserve could start cutting interest rates as soon as next month also fueled the gains, with the yield on 10-year notes sliding to the lowest in a month. The moves mostly held after Qatar said the Iranian barrage was intercepted, alleviating some concern about disruptions in oil supply.
The five-year note’s yield declined as much as 10 basis points to 3.86% and remained eight basis points lower on the day. Traders boosted their bets that the Fed will lower rates by at least 50 basis points before the end of the year, with a roughly 20% probability of a reduction in July. Markets are pricing in a September move as more likely.
Yields on two-year Treasuries, most sensitive to the Fed’s monetary policy, are lower by nine basis points at 3.82%.
The Fed at its meeting last week held its benchmark interest rate in a range of 4.25% to 4.5%. Following the meeting, Fed Chair Jerome Powell reiterated his view that policymakers can afford to take a patient approach on rate adjustments, as they wait for additional details on how Trump’s economic policies, particularly on trade, evolve.
Bond investors watching the latest geopolitical developments are on alert for hints on when the Fed will deliver the two 2025 rate cuts officials projected at their latest policy meeting.
US manufacturing grew at a steady pace so far in June, partly reflecting stronger employment growth, while two measures of inflation accelerated to the highest levels since July 2022.
The S&P Global flash June factory purchasing managers index held at 52, the highest since February, according to data released Monday. Figures above 50 indicate growth.
