Summary:
Over the week leading to 1 August 2025, Australian government bond yields climbed modestly across most maturities. The 3‑year yield rose by approximately 7 basis points to 3.39%, the 5‑year yield about 3.71%, and the 10‑year closed around 4.30%, up 5 bps. The longer 15‑year yield edged up to roughly 4.66%.
Economic surprises: June consumer spending and building approvals came in stronger than expected, reducing urgency for immediate rate cuts and pushing bond yields higher.
Inflation softening still supportive: Q2 CPI inflation eased into the 2–3 % target zone, reinforcing market expectations of a 25 bp RBA rate cut in August, though the tone shifted toward more gradual easing Australian Bond Exchange. Markets are fully pricing in an August RBA rate cut, and projecting a gradual easing trend into mid‑2026, possibly guiding the cash rate down to around 3.1–3.3%.
Despite yield rises this week, expectations that disinflation-trends persists helped anchor sentiment, while economic strength tempered the magnitude of any rally.
In sum, Australian bond yields rose modestly this week, reflecting a balancing act between stronger domestic data weighing against the easing narrative, versus broadly cooling inflation emboldening markets to price in eventual RBA rate cuts.
The Australian 3- and 10-year bond spreads moved slightly higher as market participants adjusted their short-end rate expectations. In the US, the spread between 2- and 10-year bonds was stable over the week.
Figure 1: Aust. 3 yr minus 10 yr Bond Spread
Figure 2: Australian & US Bond Yields
Figure 3: US 10 yr minus 2 yr Bond Spread
