| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.447 | 3.424 | 0.023 |
| Australian 10-year bond (%) | 4.367 | 4.341 | 0.026 |
| Australian 30-year bond (%) | 5.053 | 5.02 | 0.033 |
| United States 2-year bond (%) | 4.031 | 3.965 | 0.066 |
| United States 10-year bond (%) | 4.521 | 4.473 | 0.048 |
| United States 30-year bond (%) | 5.0101 | 4.9821 | 0.028 |
Overview of the Australian Bond Market
Australia’s 10-year government bond yield rose 5 bps toward 4.34% on Wednesday, snapping a three- session decline, as investors digested the latest inflation data.
On that front, the rise in the CPI for April held at 2.4% year-on-year from the previous month (and the month before that) and a little higher than expected. Market consensus was for it to slow to 2.3%. Trimmed mean inflation, the RBA’s preferred measure of underlying inflation, inched up to 2.8% in April from 2.7% in March. The RBA’s own forecast has the trimmed mean at 2.6% by Q2. So, inflation is at the very upper end of the RBA’s target band and proving relatively ‘sticky’. While it is wise not to read too much into a one month print, we are getting the sense that the pace and quantum of RBA cuts may be less than the market is currently pricing in. Friday’s retail sales figures are expected to provide crucial insights into consumer spending, a key factor in the RBA's policy outlook.
On stickiness of inflation, some global companies are thinking of spreading the additional costs incurred in relation to importing goods into the US across their global networks so as to reduce price rises in the US market. If so, Australia may not be as immune to Trump’s tariffs as initially thought.
Overview of the US Bond Market
The yield on the 10-year US Treasury note fell 6 bps to 4.43% on Thursday, erasing the gain from earlier in the session as evidence of softening in the economy aligned with expectations of multiple rate cuts by the Fed this year. The 30-year declined 5 bps to 4.93%.
Before we get into the economic data, Trump’s global tariffs were deemed illegal and blocked by the US trade court. The Trump administration filed a notice that it was appealing the ruling. The US Supreme Court may ultimately have the final say in the high-stakes case that could impact trillions of dollars in global trade. Irrespective of the outcome, there is a general view that the best guess at this stage is that the administration has enough powers to bypass the ruling and implement tariffs on several grounds. To keep it simple, there is a stay on existing tariffs and nothing changes at the moment. More interestingly is who initiated this case – it was small businesses. Because many are facing an existential crisis and are not afraid to take on Trump. Wall street listed entities are in a very different position.
There was a slew of economic data and all of it was soft, hence the reaction in treasuries. The US economy shrank at the start of the year, restrained by weaker consumer spending and an even bigger impact from trade than initially reported. Pending sales of previously owned homes last month fell by the most since September 2022, while a rise in recurring jobless claims signalled higher unemployment. All up, negative signals unless you are looking at it from the perspective of Fed rate cuts.
Updated aggregates continued to show that the US GDP contracted in the first quarter. Not really big news – this was simply a revision to the previously released 1Q25 GDP figure and in which the negative print was driven by a huge increase in imports to get ahead of the tariffs.
Pending sales of previously owned US homes last month fell by the most since September 2022, illustrating a disappointing spring selling season as prospective buyers balk at high asking prices and borrowing costs. An index of contract signings dropped 6.3% in April to 71.3. The decline was steeper than all estimates in a survey of economists. The disappointing figures suggest the resale market will continue to trudge along until prices come off their record levels and mortgage rates settle somewhere closer to 6% than the current 7%.
Recurring applications for US jobless benefits jumped to the highest level since November 2021, possibly presaging a rise in the unemployment rate this month. Continuing claims, a proxy for the number of people receiving benefits, increased by 26,000 to 1.92 million in the week ended May 17. That exceeded the median forecast of 1.89 million in a survey of economists. The period includes the reference week for the government’s employment report for the month of May, which is due June 6. The numbers suggest the combined impact of the Trump administration’s trade policy and government spending initiatives are starting to take a larger toll on the labour market as those out of work increasingly struggle to find new positions. So far, it’s yet to show up meaningfully in the monthly jobs report — the unemployment rate stood at 4.2% in April, a level it first reached in July 2024.
Investors are also gearing up for the Federal Reserve’s preferred inflation measure, the US personal consumption expenditures (Core PCE) price index excluding food and energy, which will be released Friday. The April reading is forecast to rise 0.1% based on consensus expectations.
