The Australian government's 10-year bond yield has surged to 5.16 per cent in afternoon trade, its highest level since April 2011, when it reached 5.24 per cent. The yield had fallen to a low of 0.55 per cent during the COVID-19 pandemic before beginning its current climb.
The sell-off reflects growing market concerns about inflation, which erodes the value of fixed-income bonds. As inflation expectations rise, investors demand higher compensation, pushing yields up. Bond prices and yields move in opposite directions.
AMP chief economist Shane Oliver described the development as "bad news" for everyone. "The rise in the Australian government's 10-year bond yield reflects a combination of rising yields globally and ongoing inflation concerns locally," he said. "It's bad news because it means rising interest costs on public debt, meaning less money left over for government services, raising corporate borrowing costs and higher fixed mortgage rates, making it harder for new home borrowers."
Dr. Oliver noted that Australia's gross national debt recently surpassed $1 trillion, amplifying the impact of higher borrowing costs. Longer-term bonds like the 10-year tend to influence the big banks' fixed-rate mortgage products, while shorter-term bonds and the Reserve Bank's cash rate influence variable-rate mortgages. The three-year bond yield also rose seven basis points to 4.73 per cent.
The sell-off is part of a global phenomenon. Japan's 10-year government bond yield rose to 3 per cent, its highest since September 1996. Yields on British and US government bonds have also surged. Last week, the US 30-year Treasury bond yield hit 5.2 per cent for the first time in 19 years, during a period comparable to the global financial crisis. The US government's debt burden has surpassed $US40 trillion, and markets remain unconvinced that the Trump administration has a clear plan to reduce it.