Summary:
Last week, the Australian bond market was driven by the Reserve Bank of Australia’s (RBA) monetary policy actions, domestic economic data, and strong corporate issuance. On August 12, the RBA cut the official cash rate by 25 basis points to 3.60%, marking the third reduction this year. The decision was driven by moderated inflation, which eased to 2.7% in the June quarter, a slowing economy with GDP growth at 1.3% year-on-year, and a cooling labour market reflected in a 4.3% unemployment rate. Following the announcement, government bond yields declined across the curve, with the 10-year yield easing to 4.23% and shorter-term yields also falling, signalling market expectations for continued accommodative policy.
Corporate bond activity was robust, exemplified by the Commonwealth Bank of Australia’s $5 billion issuance, which drew over $8 billion in investor demand. The offering included both fixed and floating rate bonds with maturities of 3.25 and 5 years, reflecting a strong appetite for secure fixed-income instruments amid liquidity in the market and high equity valuations.
Looking ahead, the bond market remains attentive to domestic economic indicators, particularly inflation and employment data. The RBA has noted that further rate cuts could occur if economic conditions warrant, while inflation is expected to stay within the central bank’s 2–3% target range. Global uncertainties, including trade tensions and slowing GDP growth in major economies, also continue to influence investor sentiment.
Overall, last week’s market activity highlights investor responsiveness to monetary policy and economic developments. Bond yields adjusted lower following the rate cut, corporate issuance attracted strong demand, and the outlook remains cautiously optimistic, with expectations of sustained interest in fixed-income assets as the RBA balances support for growth with price stability.
Figure 1: Aust. 3 yr minus 10 yr Bond Spread
Figure 2: Australian & US Bond Yields
Figure 3: US 10-year minus 2-year Bond Spread
