Global bond market sell-off intensifies! Australian bond yields reach a fifteen-year high as traders bet on the RBA soon resuming interest rate hikes.

Due to the intensified global sell-off of sovereign debt and the continued unexpected inflation and consumption data domestically, the yield on Australia's benchmark government bonds has reached its highest level since 2011. Currently, traders have significantly raised their bets on the Reserve Bank of Australia restoring interest rate hikes in the short term, with rate futures indicating that the probability of a 25 basis point hike in November has exceeded 90%. Data shows that the yield on Australias 10-year government bonds surged by 10 basis points to 5.19%, marking the highest level since July 2011. The 3-year government bond yield, which is more sensitive to monetary policy, also rose by 7 basis points, reaching 4.73%. In other global markets, the yield on U.S. 10-year government bonds increased by 3 basis points to 4.78%, the highest level since January 2025. Japans 10-year government bond yield climbed by 5 basis points to 2.99%, reaching a 30-year high. According to the latest data, traders have raised the probability of a Federal Reserve rate hike in September to 74%. Prior to Federal Reserve Chairman Wallers speech in Jackson Hole last Friday regarding controlling inflation, this probability was only 34%. Strategist Mark Cranfield stated, "G10 fixed income traders are increasingly paying attention to Japanese government bonds. The movements of Australian bonds are influenced not only by U.S. bonds but are also increasingly referencing Japanese bond trends. The short-term outlook is not optimistic: inflation remains stubbornly high, combined with large fiscal deficits prevalent in the U.S., Japan, the U.K., and France." As for Australia, the latest data from the statistical bureau shows that household spending in July grew by 1.1% month-on-month, nearly four times market expectations, marking the third consecutive month of growth. The inflation data released the day before the spending figures also showed stubbornness, with the trimmed mean CPI in July rising 3.6% year-on-year and overall CPI increasing by 3.5%, both exceeding the Reserve Bank of Australia's target range of 2% to 3%. Following the release of these two data points, the money market almost fully priced in a rate hike in November. Previously, the market believed that tightening policies were starting to show effect. In the second quarter, the wage price index increased by 3.2% year-on-year, with private sector wage growth slowing to 3.1%, the lowest since June 2022; the unemployment rate rose from 4.4% to 4.5% in July, with employment falling by 16,000 and the labor participation rate slightly declining. However, as full-time employment remains resilient, the market believes that the labor market is only gradually cooling rather than weakening rapidly. RBA Governor Michelle Bullock stated after the August monetary policy meeting that another rate hike would be considered necessary if required, and she believes it is "very likely" that this will be needed. A week later, Deputy Governor Andrew Hauser warned that if the upside risks to inflation materialize and inflation does not ease, the central bank would have to hike rates again. The latest data has caused the market to reprice expectations. The ASX 30-day interbank cash rate futures curve indicates that traders expect the cash rate to rise to 4.58% in November, meaning there is approximately a 92% chance of a 25 basis point increase from the current 4.35%. By the December meeting, the market has fully priced in one 25 basis point hike; the cash rate is expected to peak at 4.67% by March next year, suggesting there is still about a 28% chance of one additional hike at that time. Analysts point out that although rising yields are driven by the global debt market sell-off, the domestic fundamentals in Australia are the more critical factor. The stubbornness of inflation combined with strong household spending indicates that the RBA's signals of suppressing demand through high interest rates have not fully transmitted to the household sector. Before the September monetary policy meeting, the market will closely monitor more employment, inflation, and consumption data to assess whether rate hikes will transition from "bets" to reality.