Summary: The yield on the 10-year US Treasury note rose past 4.3% on Friday, testing the highest in over two weeks, as upside risks to inflation limited the magnitude of rate cuts that the Federal Reserve has room to deliver this year. Year-ahead inflation expectations measured by the University of Michigan soared to 4.9% in March, the highest in over two years, reflecting that the aggressive set of tariff threats by President Trump may have already impacted spending patterns by households and businesses.
The uncertain impact of the trade war between the US and its major trading partners drove markets to shed risk at the second week of March, but pro-inflationary concerns resulted in selling for Treasuries of longer maturities and widened credit spreads. The Fed is largely expected to hold rates unchanged in its decision this month, and swap rates indicate that the market has moved to position for two total cuts this year, compared to expectations of three cuts earlier in the month.
Australia’s 10-year government bond yield rose to around 4.48% as investors continued to assess the Reserve Bank of Australia’s monetary policy outlook. Recent strong economic data has dampened expectations of further rate cuts from the central bank. Data released last week showed that Australia’s annual GDP growth in the fourth quarter exceeded forecasts, marking its first acceleration in over a year.
Earlier data also revealed that the country’s labor market remains tight. Moreover, in the latest RBA meeting minutes, the central bank signaled a cautious approach to future rate decisions, noting that it does not commit to additional reductions. However, yields remained under pressure amid worries about the potential impact of tariffs on global economic growth.
Exhibit 1. Australian 3Y/10Y Bond Yield
Exhibit 2. AU and US Bond Yields Spread
Exhibit 3. Global Bond Yields
