With the rise in inflation expected to lead to increases in interest rates in 2026, what will that mean for fixed income investors?
Philip Brown, Head of Research at FIIG, suggests: “The RBA won’t want to raise rates too quickly so any rate rises (if they come) would be done relatively slowly.
Australian bond yields have been rising for a few weeks now as the anticipation of rate cuts dissolved and has been replaced with a risk of a rate rise.
However, the overall stability of bond yields this year shouldn’t be ignored. The RBA has managed to take the cash rate from a peak of 4.35% to the current 3.60% and that there is a clear possibility that is the whole cycle if the next move is up – which is looking much more plausible now given the latest CPI results.
The 10-year Government bond yield has been even more stable. The highest yield in 2025 was 4.63% back in January and the lowest was 4.10% in October. The current yield is around 4.50%, so we are back near the higher edge if the range for bond yields.
Those are the ultra-safe government yields, corporate yields are much higher, of course – but those corporate yields have been stable too.
Also read: What’s Ahead For Global Fixed Income Markets?
One of the benefits of a soft landing for the economy is that we don’t need emergency RBA settings in either direction, which contributes greatly to stability in bond prices.
Meanwhile, if the RBA does raise rates, bond investors will be able to get higher yields from their bond investments. If the RBA does raise the cash rate in 2026 bond investors will benefit from the higher interest rates will also being able to take comfort in the fact that the movements in bond prices are much less extreme now that the emergency settings of the COVID era are fading into history.”
