Australia bond yield curve flattens as inflation quickens, rate cut bets drop

Better-than-expected inflation data pushed short-duration government bond yields higher, leading to a flatter yield curve.

At the time of writing, the 2-yr bond yield was up three basis points. Similar gains were seen in 1-yr and 5-yr bond yields. Meanwhile, at the long end of the curve, yields were largely flat to negative.

A flatter yield curve is usually a result of higher short-term inflation expectations/prospects of short-term interest rate rise.

The Q3 inflation data surprised on the higher side, thus reducing the prospects of an interest rate cut in November. The implied probability of RBA rate cut in November fell to 6% from 15% following the CPI release.