19 May 2025

	Close	Previous Close	Change
Australian 3-year bond (%)	3.636	3.629	0.007
Australian 10-year bond (%)	4.515	4.475	0.04
Australian 30-year bond (%)	5.154	5.111	0.043
United States 2-year bond (%)	4.006	3.9446	0.0614
United States 10-year bond (%)	4.545	4.4079	0.1371
United States 30-year bond (%)	5.0227	4.8695	0.1532

Overview of the Australian Bond Market

Australia’s 10-year government bond yield rose to around 4.56%, remaining near a four-month high as investors awaited the RBA’s policy decision. While the central bank is widely expected to cut the benchmark interest rate by 25bps, investors have scaled back their expectations for total rate cuts this year to 75bps, down from over 100bps just weeks ago.

This shift follows strong labor market data last week, which added to signs of a resilient economy. Additionally, the recent easing of the US-China trade conflict has lowered the likelihood of a more aggressive policy response from the central bank. RBA Governor Michelle Bullock also intends to keep options open for herself and the Board at upcoming meetings, signaling that policymakers are not committing to further easing at this stage.

However, as we noted yesterday, the RBA could still throw a curveball at its policy meeting today, despite widespread expectations of a rate cut. Markets and economists are leaning toward a second rate cut from the RBA this year, just weeks after the Labor government’s landslide election victory. That’s because inflation has finally drifted back into the central bank’s target band and there is a risk to Australia’s economy from a global slowdown. Markets are leaving no room for surprise, which is somewhat puzzling given that in February the RBA had said the decision [to cut] wasn’t a lay-down misère.

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Overview of the US Bond Market

Long-dated Treasuries fell on Monday after Moody’s Ratings downgraded the US’ credit rating from Aaa to Aa1, citing concerns over the nation’s fiscal outlook and ballooning debt. The downgrade led to a very slight increase in yields on 30-year and 10-year US Treasury bonds. The 30-year yield increased as much as 9bps to 5.03%, the highest since November 2023, while the 10-year rate reached 4.56%, approaching last month’s high. Both retreated from those levels and were higher by less than circa 2bps at the close.

The Moody’s downgrade was largely a non-event. There was no real surprise as Moody’s was citing facts the market already knew, namely the sizable US deficit. There’s a reason the 30-year is elevated. Moody’s was also last in line to downgrade, with S&P doing so in 2011, Fitch 2023. And we doubt any major fixed-income manager was surprised – there was simply no incremental information here. The latest credit action is largely a headline risk rather than a fundamental shift for markets. However, the US credit rating downgrade adds to a long list of uncertainties that are  weighing on markets right now, including tariff, fiscal, inflation and economic ones

Still, some analysts say the latest news are just another reason for investors to remove money from dollar-denominated assets, continuing a trend that started with Trump’s trade tariff announcement last month. The Dollar Spot Index fell as much as 0.7% on Monday.