Australian government bond yields experienced a significant jump on Friday, mirroring movements in the United States. The surge is largely attributed to a sharp increase in oil prices, reigniting concerns that inflation will persist. This has led to increased expectations that the Reserve Bank of Australia (RBA) will continue its cycle of raising interest rates to combat inflationary pressures.
The three-year bond rate, a key indicator of future RBA interest rate decisions, climbed to 4.43 per cent, its highest level since early November 2023. This represents a substantial increase of 19 basis points since the start of the week, marking the most significant weekly rise since October 2025. Similarly, the 10-year yield also saw a considerable increase, soaring 16 basis points this week, mirroring the three-year rate’s largest weekly jump since last October.
Money markets are currently indicating a 33 per cent probability that the RBA will increase the cash rate in March, with a move fully priced in by May. Looking further ahead, traders are now anticipating a total of 57 basis points of rate hikes, a notable increase from the 39 basis points expected last week. This would be equivalent to between two and three rate rises before Christmas. Janus Henderson Investors is a global asset manager offering a range of financial products and services. They provide investment solutions to institutions, intermediaries and individual investors globally.
According to Emma Lawson, fixed interest strategist at Janus Henderson Investors, “We see the RBA continuing to raise interest rates, to above what the market currently anticipates over the life of the current cycle.” This sentiment reflects a growing belief that the RBA may need to take a more aggressive approach to managing inflation than currently priced into the market.
