Australian Bond Yields Poised to Fall Below US for First Time in a Year

Money & Banking··AUUS·Read original
3▲1 ▼2Impact / 5
Summary · why it matters

Australian government bond yields are poised to fall below US government bond yields for the first time in more than a year, after the market anticipated that the monetary policy of the Reserve Bank of Australia, or RBA, is nearing the end of its rate-hiking cycle, while the US Federal Reserve still looks likely to raise rates further. The spread between the yield on 10-year Australian government bonds and that of equivalent US government bonds has narrowed to around 12 basis points, or bps, close to its lowest level since September 2025. Strategists from Barrenjoey Markets and Westpac Banking Corp. expect yields in the two countries to converge to similar levels in the coming months, while National Australia Bank, or NAB, believes the spread could turn negative, meaning Australian bond yields would fall below US yields. Kenneth Crompton, head of interest rate strategy at NAB in Sydney, said the bank's base case still expects the 10-year Australian and US bond yield spread to reverse in 2027, but that if it happens sooner, it would not be considered a major deviation from market conditions. He also expects that if the policy trajectories of the RBA and the Fed diverge as much as anticipated, the spread could fall back to around -20 bps by the end of 2027. Currently, the market expects the Fed to raise interest rates three more times, by 0.25% each, over the next 12 months, while the market expects the RBA to raise rates only once more, reflecting the increasingly clear divergence in monetary policy trajectories between the two countries.

Impact on assets 3

Others± Mixed · 2 stocks
Others▼ · 1 stocks

Off-coverage companies 2

National Australia BankPrivate± Mixed
Monetaryrelevance

NAB strategist quoted forecasting the AU-US yield spread could turn negative; no direct earnings impact.

BarrenjoeyPrivate± Mixed
Monetaryrelevance

Barrenjoey strategists cited expecting AU and US yields to converge; only a passing mention.

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