Australian Yields Climb to Highest This Year on Rate-Hike Bets

Australia’s bond yields rose to the highest level this year amid growing speculation the central bank will switch back to raising interest rates to bring down inflation.

The benchmark 10-year yield advanced for a fifth straight session, climbing as much as four basis points to 4.68%, a level last seen in November 2024. The three-year yield jumped as much as six basis points to 4.04%.

Australia’s household spending increased faster than economists estimated in October, data showed on Thursday, boosting the case for a rate hike next year. Overnight-indexed swaps indicated that the Reserve Bank of Australia will raise its official cash rate by 25 basis points by the end of 2026. The contracts had signaled a more than 50% chance of a cut just a month ago.

“The notion that the next move from the RBA is a hike rather than a cut has gained traction,” said Frances Cheung, head of foreign exchange and rates strategy at Oversea-Chinese Banking Corp. in Singapore.

Thursday’s data showed consumer spending got a boost from promotional sales events, major concerts and cultural festivals that drove demand for catering and hotel stays across major cities.

The figures added data in recent days that have pointed to underlying strength in Australia’s economy with home prices extending gains in November, business investment coming in stronger than expected for the three months ended September, and household consumption generally proving resilient.

That increased impetus is fueling concern about inflation, suggesting the RBA may adopt an even more hawkish stance when it meets on Dec. 9 for its final policy decision of the year. While the market expects the central bank to leave its cash rate unchanged, Governor Michele Bullock said on Wednesday that policymakers are closely monitoring inflation pressures and are ready to act in the event they show signs of regaining strength.

The RBA’s three rate cuts this year have already brought down its benchmark to 3.6%, the lowest level since April 2023. The central bank has also switched to a data-dependent stance after third-quarter inflation surpassed the top of its 2%-to-3% target band while the labor market remains tight.

“Risks are skewing further toward a hike being delivered within the first half of next year,” said Ken Crompton, head of rates strategy at National Australia Bank Ltd. in Sydney. “We are nearly pricing that outcome now, so further upside in yields is likely to be modest” although yields can stay around the current levels, he said.