| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.446 | 3.508 | -0.062 |
| Australian 10-year bond (%) | 4.366 | 4.433 | -0.067 |
| Australian 30-year bond (%) | 5.098 | 5.182 | -0.084 |
| United States 2-year bond (%) | 3.606 | 3.66 | -0.054 |
| United States 10-year bond (%) | 4.203 | 4.293 | -0.09 |
| United States 30-year bond (%) | 4.8856 | 4.9883 | -0.1027 |
Overview of the Australian Bond Market
Bond yields in Australia eased on September 4, 2025, tracking a calmer tone in global fixed income markets after softer US economic data tempered fears of aggressive rate hikes. The 2-year yield fell 4 basis points to 3.40%, the 5-year dropped 6 basis points to 3.71%, the 10-year declined 8 basis points to 4.34%, and the 15-year slipped 7 basis points to 4.71%. The moves followed a positive Wall Street session, where dovish Federal Reserve commentary and weak jobs data helped douse bond market volatility.
Australia’s trade data for July showed a stronger-than-expected goods balance of A$7.31 billion, surpassing forecasts of A$5 billion, driven by a 3.3% rise in exports and a 1.3% decline in imports. This bolstered views of economic resilience amid global trade tensions, though the US reported a wider-than-expected trade deficit of $78.3 billion for July, highlighting ongoing imbalances that could influence tariff discussions. US ISM non-manufacturing PMI came in at 52, beating estimates of 51 and signaling expansion in services, while initial jobless claims rose to 237,000, slightly above the 230,000 forecast, adding to evidence of a cooling labor market.
Treasury Secretary comments on US-China tariff talks, including the possibility of a 90-day extension to the truce expiring in two weeks, were echoed in broader sentiment, with President Trump set to decide. This comes as deals with the EU and Japan have reduced some uncertainty, potentially allowing central banks like the RBA to maintain steady policy. Investors are eyeing tomorrow’s US non-farm payrolls, expected at 75,000 with unemployment at 4.3% and wage growth at 3.7%, which could sway Fed rate cut odds—currently pricing in about half a point of easing by year-end, possibly starting in September.
Bond positioning has shifted cautiously, with recent data suggesting asset managers trimmed long positions in global fixed income amid high valuations and tariff risks. While Australia’s economy shows strength—following Q2 GDP growth of 0.6% quarterly and 1.8% annually, both above estimates—the RBA faces pressure to monitor inflation, with markets implying rates may stay elevated longer if US data disappoints. Dealers anticipate steady auction sizes for Australian government bonds in the coming quarter, consistent with prior guidance, as longer-dated yields lead the decline.
Overview of the US Bond Market
Economists expect Friday’s employment report to confirm the weakest stretch of U.S. job growth since the pandemic, likely cementing a Federal Reserve rate cut this month. Consensus forecasts see nonfarm payrolls rising just 75,000 in August, the fourth consecutive month below 100,000. The unemployment rate is projected to tick up to 4.3%, the highest since 2021.
Hiring has cooled sharply as firms grapple with softer demand, higher costs, and uncertainty tied to President Trump’s trade policies. Analysts describe a “frozen” labor market, with August gains likely concentrated in health care, leisure and hospitality, and some government hiring. Private-sector payrolls rose only 54,000 in ADP’s August data, with declines in education and health services.
The slowdown follows significant downward revisions to prior months’ job growth, prompting Trump to fire the head of the Bureau of Labor Statistics, raising concerns over data integrity. Economists warn more revisions could further highlight persistent weakness. The BLS’s upcoming benchmark adjustment may also lower payroll counts substantially.
Other indicators reinforce the fragile picture. Job openings in July dropped to a 10-month low, unemployment claims hit their highest since June, and corporate surveys show record-low August hiring plans alongside rising layoffs. Such evidence bolsters expectations that the Fed will cut rates at its Sept. 16–17 meeting, with futures fully pricing a quarter-point move and some investors speculating about a larger reduction if payrolls disappoint.
Still, the Fed faces a delicate balancing act. Inflation remains firm even as labor conditions weaken, leaving policymakers torn between their dual mandates. Analysts expect more dissent within the Federal Open Market Committee over the appropriate path, but most agree jobs data will be the decisive factor. Near-term, the trajectory of monetary policy will hinge squarely on how quickly and deeply the labor market continues to soften.
