Australia’s 10-year government bond yield hovered around 4.7%, near a four-month low, as sliding oil prices and narrowing yield differentials—driven by expectations of a more hawkish US policy stance—more than offset a rebound in domestic employment data.
The economy added 40,300 jobs in May, recovering from a revised loss of 40,600 positions in April and beating market expectations for a 30,000 gain. The unemployment rate edged down to 4.4% from 4.5%, in line with forecasts.
The jobs report came on the heels of Wednesday’s mixed inflation data, which left investors divided over the likelihood of another interest rate increase, with markets assigning roughly a 50% probability to a hike by year-end.
At the same time, rising expectations for further US rate hikes have led Australian bonds to outperform US Treasuries, eroding Australia’s yield premium. Last week, the Federal Reserve signaled growing support for tighter policy, with Chair Kevin Warsh reiterating his commitment to restoring price stability.
Separately, progress in US-Iran peace talks has driven oil prices back to pre-conflict levels, easing market concerns about inflation.