(Bloomberg) — Australia’s three-year bond yield, which tracks expectations for policy rates, may rise from its highest level in a decade as traders weigh expectations for accelerating inflation.
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The nation is set to report third-quarter inflation data Wednesday, with economists expecting consumer prices to rise 7% from a year earlier, from 6.1% in the prior period. A beat on that number could reignite debate over the central bank’s surprise decision this month to slow rate hikes.
The Reserve Bank of Australia’s pivot on Oct. 4 sent three-year yields tumbling, before they surged again to 3.78%, the highest level since 2012. The central bank has since conceded that its decision to raise rates less than expected was “finely balanced”, giving further ammunition to bond bears.
“With the kind of volatility and move sizes that are becoming the norm, then 3-year yields could definitely hit 4%,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. “An upside inflation surprise would exacerbate current fears and bring the chances of a 50 basis-point hike back to the fore.”
Even if local price gains fail to spur Australian yields higher, action by global central banks intent on taming inflation will provide further pressure, said Martin Whetton, head of fixed income and FX strategy at Commonwealth Bank of Australia in Sydney.
Federal Reserve policy makers have suggested they’re prepared to raise interest rates higher than previously planned to defeat persistent high inflation. While market participants see US rates peaking at 5%, Bloomberg Economics said a terminal rate of 6% is possible if the Fed underestimates the natural rate of unemployment or if the pandemic causes US productivity to deteriorate.
“Aussie rates will continue to chop around with global moves, in particular with those in US,” Whetton said.
Here are the key Asian economic data due this week:
Monday, Oct. 24: RBA’s Kent speaks, Japan PMI’s
Tuesday, Oct. 25: Singapore CPI, South Korea consumer confidence, Thailand customs trade balance
Wednesday, Oct. 26: Australia 3Q CPI, New Zealand business confidence, South Korea business surveys, Singapore industrial production
Thursday, Oct. 27: South Korea 3Q GDP, China industrial profits
Friday. Oct. 28: BOJ policy decision, Australia 3Q PPI, New Zealand consumer confidence, Taiwan 3Q GDP
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