Australian bond yields are trending towards the upper limits of this year’s range as market expectations shift from anticipated rate cuts to pricing in the possibility of further tightening in 2026. This movement reflects a broader adjustment in market sentiment following the release of stronger-than-expected inflation figures. The 10-year government bond yield is currently trading near 4.50 per cent, nearing the upper boundary of its 2025 range of 4.10 to 4.63 per cent.
According to FIIG head of research Philip Brown, the Reserve Bank of Australia (RBA) is expected to proceed cautiously if it chooses to adjust rates further. He suggested that any rate increases would be implemented gradually to avoid destabilising the economy. Brown also pointed out the relative stability observed in bond markets throughout the year, despite shifts in the cash rate from 4.35 per cent to 3.60 per cent. Corporate bond yields have exhibited similar stability, remaining relatively consistent despite being higher than government bond yields.
Brown emphasised the stabilising effect of a soft economic landing, which reduces the necessity for emergency RBA interventions in either direction. This contributes to greater stability in bond prices. He said that the stability of bond markets this year had been underappreciated.
Should the central bank decide to tighten monetary policy in the coming year, bond investors could benefit from higher yields combined with the reduced price volatility seen since the pandemic. This scenario presents a potentially advantageous environment for those invested in the bond market.
