Australian Bond Yields Jump as Inflation Boosts Rate-Hike Bets

  • In Business
  • 2021-10-27 02:02:08Z
  • By Bloomberg

(Bloomberg) -- Australia's three-year bond yield climbed to the highest level since July 2019 after consumer inflation picked up pace in the September quarter, strengthening rate-hike bets.

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Yields rose as much as 24 basis points to 1.01% after trimmed mean inflation for the third quarter -- a core measure which feeds into central bank policy -- rose 2.1% versus a year ago, above economist estimates of a 1.8% rise. The April 2024 bond, used by the by the Reserve Bank of Australia to control the yield curve, rose to the highest relative to the RBA target since the program began last year.

Swaps traders Down Under have priced in three hikes by the Reserve Bank of Australia by end-2022, to take the cash rate up to 0.75%, based on OIS futures. Meanwhile, the central bank governor had said that he doesn't see conditions for a rate rise emerging before 2024. Australia's quickening inflation is also likely to revive the debate on whether consumer cost pressures in the global economy are here to stay.

"Today's stronger underlying Australian inflation print reaffirms what we have seen globally, inflation has begun its ascent earlier than many central bank officials expected and current price pressures suggest they are unlikely to be transitory," said Prashant Newhana, a senior rates strategist at TD Securities in Singapore. "For markets, the question is whether this sell-off in rates is done? We don't think so."

Australia's bond yields have been on the rise since late September, tracking Treasuries, after Federal Reserve Chair Jerome Powell said the U.S. central bank could start scaling back its bond purchases as soon as November.

The upward pressure on Aussie yields has also come from expectations of a growth rebound, after the nation's state governments announced the end to long-standing lockdowns in the nation's two largest cities. The federal government has committed to reopen the country to international travelers.

The surge in yields forced the RBA back to defend its 0.1% bond-yield target Friday, for the first time in eight months, raising doubts on potential central bank tightening.

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