Australia's benchmark bond yield is poised to fall below its US counterpart for the first time in over a year as expectations for monetary policy diverge between the two economies.
The gap between 10-year Australian notes and similar-maturity Treasuries has narrowed to about 12 basis points, hovering around its smallest since September 2025. Barrenjoey Markets and Westpac Banking Corp. expect the rates to converge in the coming months while National Australia Bank Ltd. says the spread could even turn negative.
"Whilst our base case is 10-year Australia-US Treasury spread inversion to happen during 2027, it wouldn't be out of line for it to happen now," said Kenneth Crompton, head of rates strategy at NAB in Sydney. "By the end of next year if RBA and Fed expectations diverge as much as we expect, then the spread can easily re-test the -20 basis point level."
The allure of Australian bonds has grown after data earlier this week showed inflation cooled in August and RBA Governor Michele Bullock expressed "hope" that the four rate hikes this year will be sufficient to quell price pressures. Traders expect the Fed to deliver three more quarter-point interest-rate hikes over the next 12 months, while in Australia, traders expect just one. Money managers such as Jupiter Asset Management and Candriam are among those buying Australia's debt betting that the end of the rate-hike cycle is near.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing