| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.328 | 3.323 | 0.005 |
| Australian 10-year bond (%) | 4.165 | 4.151 | 0.014 |
| Australian 30-year bond (%) | 4.891 | 4.877 | 0.014 |
| United States 2-year bond (%) | 3.701 | ||
| United States 10-year bond (%) | 4.231 | ||
| United States 30-year bond (%) | 4.737 |
LOCAL BOND MARKETS
Australia’s 10-year government bond yield held steady around 4.23% as investors digested a fresh batch of economic data. Retail sales rose just 0.3% in March, down from a revised 0.8% gain in February and below expectations of a 0.4% increase.
This, combined with easing core inflation—which fell to 2.9% from 3.3%, returning to the RBA’s 2–3% target band for the first time since late 2021—reinforced expectations of a near-term rate cut. Markets widely anticipate a quarter-point cut later this month. However, producer prices rose 0.9% in Q1, slightly above the 0.8% forecast, while headline consumer inflation came in at 2.4%, exceeding the 2.3% estimate.
The stronger-than-expected inflation print prompted investors to scale back forecasts for multiple rate cuts this year. Expectations of a 25bps rate cut at the central bank’s meeting later this month remain very close to 100% priced in, although there was now little chance of a large half-point move, which central bank watchers always considered unlikely.
US BOND MARKETS
The yield on the 10-year U.S. Treasury note rose 7 bps to above 4.27% on Friday, following stronger-than-expected April non-farm payroll data. The more policy sensitive 2-year period rose 12 bps to 3.83% as the release of the Nonfarm Payrolls report led to a reset of Fed cuts, or at least the timeline of cuts, more so than the ultimate magnitude.
Jobs growth was robust in April and the unemployment rate held steady; non-farm payrolls increased 177,000 after the prior two months’ advances were revised lower. The report showed remarkable resilience in the labour market ahead of a coming tariff shock. While in the short term that’s supportive of equities, where hope springs eternal, it may weigh on bonds as it means less opportunity for pre-emptive rate cuts. Longer-term, a fully recovered US equity market has almost no room to deal with inevitable bad news on the economic or tariff fronts.
In terms of the actual data, of note are the increase over the past two months in labour participation and hours worked, and the decline in the more comprehensive unemployment rate. All three of those details point to a firming labour market, not a weakening one, since in a weaker environment firms would tend to cut hours and labour participation should fall as discouraged workers work part time or leave the workforce.
As the Fed has already indicated, the labour market is in a good enough place so that it won’t cut unless it softens considerably. This report, then, pushes back the timetable of possible rate cuts. Swaps markets have still fully priced a July cut, but the chances of a June cut are now below 50%.