CPI data was released last week and rose 4%, up from 3.5% in the 12 months to July 2026. Key contributors were housing and transport at 5.7% and 5.6%, respectively. Alcohol and tobacco rose 4.8%, while education was at 4.7%.
The RBA Policy Board’s preferred trimmed mean measure was unchanged at 3.6% but remains well above the target 2-3% range. Will the latest hike be enough to tame demand and bring CPI back towards its target? Opinions differ.
Thinking about the cash rate in the future, the 3-month BBSW gives us a picture of bank expectations. As of close of business yesterday, the 3-month BBSW midpoint was 4.7679%, higher than the current 4.6% cash rate. This implies more than a 50% chance of a hike in the next three months. Less than three months, there’s virtually no chance ascribed, but beyond three months, the chance rises, almost certainly in four months, with the mid rate shown as 4.8950%. The mid 6-month BBSW rate at 5.1524% implies a more than 50% chance of two hikes in the next six months.
There are many differing opinions on interest rates, and CBA boss Matt Comyn has stated he thinks the RBA is done hiking rates. CBA has access to lots of data including spending patterns on which to base an opinion. So, his opinion is worth including when forming your own view. Comyn said that a lot will depend on the next round of quarterly inflation data, due late October.
Sovereign bond yields continue to move higher as investors’ concerns about rising fiscal deficits and ability to reign in spending remains. France is the latest country to hit the headlines with an election due in 2027 and massive protests against poor high school conditions. Its 10-year sovereign bond yield, known as the OAT, fell this week to 4.75% after breaking 5% last week.
It reminds me that economies cannot have strong social commitments without corresponding high taxes.
Mark Dowding from RBC BlueBay Asset Management puts out a weekly note on global markets. I particularly like this one. Dowding thinks short-term sentiment is too bearish.
For those of you who love mathematical analysis and models, Tiffany Wilding from PIMCO has written a very interesting article assessing broad financial conditions and further US rate hikes.
Just how high can US sovereign yields go? Daniel Morris from BNP Paribas looks at correlations between yields, oil prices and equities. There’s an excellent chart showing historic Treasury yields against nominal GDP growth.
We have two articles on French sovereign yields. The first from Benoit Anne of MFS Investment Management is more global and analyses recent sovereign losses, as well as analysing future return possibilities based on current starting yields.
The second is a deeper analysis, including the Eurozone, from Laura Cooper of Nuveen.
In Australian corporate bond markets news:
- CNH Industrial Capital Australia priced a $60m tap to its June 2029 bond with an issue yield of 6.229%.
- Mitsubishi UFJ Financial Group is taking indications of interest (IOI) for an Australian dollar additional Tier 1 deal with a first call of 5.25 years for a perpetual note. Price guidance is 7.75%.
- SMBC Sydney is taking IOIs for a five-year FRN with a price guidance of 83 basis points over 3-month BBSW.
Hope you’re having a great week!
