Australian Bond Yields Rise Supported by Strong Economic Data and Expectations of Tighter Monetary Policy

Australian government bond yields increased to 4.67% on Thursday, the highest level since November 2023, as expectations strengthened that the Reserve Bank of Australia may raise interest rates next year, according to Trading Economics.

Household spending recorded a monthly increase of 1.3% in October, the largest rise since January 2024, following a slight increase of 0.3% in September.

Meanwhile, the trade balance surplus widened more than expected in October, with export growth outpacing import growth, reflecting strength in the external sector.

These data prompted markets to raise their bets on an interest rate hike, with a 50% probability priced in for an increase in May.

The central bank is widely expected to keep the cash rate at 3.6% in its meeting next week, following three cuts this year.

Data released on Wednesday showed that economic growth came in below expectations, yet still demonstrated sufficient strength to challenge the need for further monetary easing.

Reserve Bank of Australia Governor Michele Bullock warned that the economy is nearing its capacity limit, noting that policymakers remain vigilant to the risks of rising inflation.