Global bond market sell-off intensifies! Australian bond yields hit a fifteen-year high as traders bet on Reserve Bank of Australia resuming rate hikes soon

Zhitong Finance APP has learned that, driven by intensified global sovereign bond sell-offs and domestic inflation and consumption data consistently exceeding expectations, Australia's benchmark government bond yield has risen to its highest level since 2011. Currently, traders have sharply increased their bets on the Reserve Bank of Australia resuming rate hikes in the short term. Interest rate futures indicate that the probability of a 25 basis point hike in November now exceeds 90%.

Data shows that the yield on Australia's 10-year government bond once surged by 10 basis points to 5.19%, marking the highest level since July 2011. The yield on the more policy-sensitive 3-year bond also rose by 7 basis points, reaching 4.73%.

In other global markets, the US 10-year Treasury yield rose by 3 basis points to 4.78%, the highest since January 2025. Japan's 10-year government bond yield increased by 5 basis points to 2.99%, a new three-decade high. According to the latest statistics, traders have raised the expected probability of a Federal Reserve rate hike in September to 74%. Before Federal Reserve Chairman Waller gave his speech on containing inflation at Jackson Hole last Friday, the probability was only 34%.

Strategist Mark Cranfield said: “G10 fixed income traders are paying increasing attention to Japanese bonds. The movement of Australian bonds is influenced not only by US Treasuries but is also increasingly tracking Japanese government bond trends. The short-term outlook is pessimistic: inflation remains persistent, combined with the widespread large-scale fiscal deficits seen in the US, Japan, the UK, and France.”

For Australia, the latest statistics bureau data show that household spending in July grew by 1.1% month-on-month, nearly four times market expectations and marking a third consecutive monthly increase. The inflation data released the day before the July spending figures also showed persistent price pressures, with July’s trimmed mean CPI up 3.6% year-on-year and headline CPI rising by 3.5%, both above the Reserve Bank of Australia's 2% to 3% target range. After these two data points were released, the money market has almost fully priced in a rate hike in November.

Previously, the market once believed that tightening policies were taking effect. In the second quarter, the wage price index increased by 3.2% year-on-year, with private sector wage growth falling to 3.1%, the lowest since June 2022. The unemployment rate rose from 4.4% to 4.5% in July, employment fell by 16,000, and the labor participation rate edged down slightly. However, as full-time employment remains resilient, the market believes the labor market is only gradually cooling rather than weakening rapidly.

Reserve Bank of Australia Governor Michele Bullock stated after the August policy meeting that there will be another rate hike if necessary, and believes it is “very likely” that it will be required. A week later, Deputy Governor Andrew Hauser also warned that if upside inflation risks materialize and inflation fails to subside, the central bank will have to raise rates again.

The latest data have led to renewed market repricing. The ASX 30-day interbank cash rate futures curve shows traders expect the cash rate to reach 4.58% in November, suggesting a roughly 92% probability of a 25 basis point hike from the current 4.35% rate. By the December meeting, the market has fully priced in a 25 basis point hike; the cash rate is expected to peak at 4.67% in March next year, implying about a 28% chance of an additional hike by then.

Analysts point out that, although rising yields are being driven by global bond market sell-offs, Australia’s domestic fundamentals are the more crucial factor. Persistent inflation combined with strong household spending suggests the signal of the Reserve Bank of Australia dampening demand through higher interest rates has not yet fully reached the household sector. Before the September policy meeting, the market will closely monitor further employment, inflation, and consumption data to determine whether rate hikes move from “bets” to reality.