Australian benchmark 10-year government bond yields fell to 3.87% as market participants priced in a more dovish monetary policy stance, while U.S. Treasury yields also declined, reflecting global shifts in rate outlook. The moves underscore renewed risk appetite and a reassessment of central bank tightening cycles.
- Australian 10-year government bond yield fell to 3.87% on market reassessment of RBA's rate path.
- RBA’s dovish tone and softening inflation data increased odds of a rate hold in February 2026 to 62%.
- U.S. 10-year Treasury yield declined to 4.12%, reflecting global alignment on easing monetary tightening.
- Australian government bonds posted a 2.1% price appreciation over the past week.
- The 2-year yield in Australia dropped to 4.31%, signaling lower near-term rate expectations.
- Investors are awaiting upcoming inflation and employment data to validate the shift in rate outlook.
Australian government bond prices climbed sharply on Thursday, with the 10-year yield dropping to 3.87%, its lowest level since late 2024. This rally was driven by growing market confidence that the Reserve Bank of Australia (RBA) would pause its interest rate hikes and could even consider cuts in the second half of 2026, following softer inflation data and weaker labor market indicators. The shift in sentiment was reinforced by a dovish tone from RBA Governor Michele Bullock during a midweek speech, where she acknowledged that inflation pressures have eased but highlighted the need for 'cautious' policy execution. Financial markets now assign a 62% probability to a rate hold in the February RBA meeting, up from 48% a week earlier. Meanwhile, U.S. Treasury yields mirrored the decline, with the 10-year note falling to 4.12%—a drop of 9 basis points in two sessions. This cross-border movement reflects synchronized expectations of a delayed or abbreviated tightening cycle in both Australia and the United States, as inflation shows signs of moderating without triggering a sharp economic slowdown. The bond rally has benefited investors across the fixed income spectrum, with Australian dollar-denominated government bonds (AGBs) seeing a 2.1% gain in price over the past week. The yield curve flattened slightly, with the 2-year yield dropping to 4.31%, while the 10-year yield declined more significantly, signaling expectations of lower long-term rates. Market participants are now turning their attention to upcoming inflation and employment data from both Australia and the U.S., which will be crucial in confirming whether the dovish shift is sustainable or merely a temporary pause.