Investors are buying Australian bonds, betting the Reserve Bank of Australia is nearing the end of its rate-hike cycle after lifting borrowing costs to a 15-year high. Schroders Plc and Franklin Templeton are among the funds purchasing shorter-term securities, expecting the RBA to begin easing in 2027. Governor Michele Bullock expressed hope that recent hikes are sufficient to bring inflation back to target, signaling a less hawkish stance than expected.

This shift triggered a bond rally, with three-year yields falling the most in two months, and traders trimming bets on further tightening. Kellie Wood of Schroders in Sydney noted that the housing downturn and weaker sentiment are starting to impact the economy, reinforcing expectations of future rate cuts. Malin Rosengren of RBC Blue Bay Asset Management in London sees Australian rates as compelling for long-duration bets, especially if the RBA hikes once more in November.

However, inflation data due Wednesday could challenge this outlook, with prices expected to remain above the RBA’s 2%-3% target band. Traders still price in a 40% chance of another hike in November. Andrew Canobi of Franklin Templeton in Melbourne believes there is value in the shorter end of the curve, though global volatility remains a risk.

Adam Mc Cabe of Aberdeen in Singapore sees potential for long-end bonds but prefers waiting for clearer signs of economic softening.