Australian bond yields hit multi-year highs on Middle East conflict
- Australian bond yields spiked after surging oil prices and weaker US debt buybacks sparked a global sell-off.
- Three-year bond yields jumped 16 basis points to 5.04%, reaching their highest point since May 2011.
- Markets now price in a 78% probability of an RBA cash rate hike to 4.6% later this month.
Australian government bond yields spiked to multi-year highs on Sept. 11 following a surge in global oil prices and a widespread sell-off in international debt markets.
The market shift came after escalating hostilities in the Middle East drove Brent crude towards US$109 a barrel alongside smaller-than-expected US debt buybacks.
The market turmoil intensified after the US Treasury bought back US$5.2 billion in debt, which fell short of investor expectations.
Local benchmark borrowing costs felt the immediate pressure, with the Australian 10-year bond yield rising to 5.37%.
Higher yields now directly filter through the broader domestic economy by increasing interest rate pressure on consumer mortgages and commercial business loans.
Bond traders currently imply a 78% chance that the Reserve Bank of Australia will raise the cash rate from 4.35% to 4.6% later this month.
A rate increase of this scale would push Australia's official benchmark cash rate to its highest level since November 2011.