Summary:
Australian 3-Year & 10-Year Bond Yields and Spreads
Australian bond yields have continued to stabilise at elevated levels, with both the 3‑year and 10‑year tenors holding near the upper end of their post‑pandemic ranges. The 10‑year yield (dark blue) has remained consistently above 4%, while the 3‑year yield (red) has hovered closer to the 3.5%–4.0% region. This configuration reflects a market that is still pricing in a restrictive RBA stance, reinforced by persistent domestic inflation pressures through 2024 and into early 2025.
The yield spread (grey shading), representing the 10y–3y differential, has gradually widened over the past year. After spending much of 2022 and early 2023 in a compressed or flattening state, the curve has since steepened, with spreads pushing toward +1.3%–1.5%. This steepening has been driven more by a lift in long‑end yields than any significant easing in the front end, signalling investor expectations that global rates may stay structurally higher and that inflation may take longer to return to central‑bank comfort zones.
Short‑term volatility remains evident, but the broader message is that the Australian curve has shifted into a mildly positively sloped profile, consistent with a transition away from tightening risk while still reflecting limited expectations of near‑term rate cuts.
Figure 1: Australia 3 and 10-year Bond Yield Spread
US 2-Year & 10-Year Bond Yields and Spreads
In the US, the yield curve continues to recover from its historically deep inversion. Throughout 2023 and 2024, the 10y–2y spread remained deeply negative, driven by aggressive front‑end pricing as the Federal Reserve battled inflation. However, since mid‑2024 the spread has been climbing back toward neutral territory as markets increasingly anticipate eventual policy easing.
The 2‑year yield (green) has eased off its peaks near 5%, declining steadily through 2024 and into early 2025, though it remains above 3.5%. Meanwhile the 10‑year yield (navy) has been more stable, holding between 3.8% and 4.3% for most of the period. This dynamic has narrowed the inversion, with spreads moving from –1.0% territory toward zero and occasionally testing positive levels in recent months.
The gradual unwinding of the inversion suggests markets are pricing in a clearer path toward Fed easing, albeit at a cautious pace given still‑sticky inflation and mixed economic data. Unlike Australia, the US curve has not yet fully normalised, but momentum is clearly in that direction.
Figure 2: US 2 and 10-Year Bond Spread
To learn more about yield curves and their predictive power, visit this article or this one.