10-year bond rate

IBISWorld forecasts the 10-year bond rate to drop by 0.21 percentage points in 2024-25, to average 4.03%. The 10-year bond rate trends have generally aligned with cash rate movements in recent years. Because of persistently high inflation, exceeding the RBA's target level of 2.0% to 3.0%, the RBA decided to maintain the cash rate at 4.35% in its September 2024 meeting. However, gradually easing inflationary pressures and softening labour market conditions will likely place downward pressures on the cash rate over the year. These trends are expected to weaken the 10-year bond rate in 2024-25.

Interest rates fell to record lows in the early stages of the pandemic as many economies across the world fell into recession. This prompted central banks around the world to cut official cash rates, which lowered the 10-year bond rate. In addition, with initial expectations of a long and drawn-out economic recovery, the yield curve control policy adopted by the RBA and their purchases of longer-term government bonds contributed to a decline in the 10-year bond rate in the second half of 2019-20. The expectation of another rate cut in November 2020, which eventuated, drove the 10-year bond rate to a record low in the month prior. However, as the economy began to recover at a faster than expected rate and with positive developments in the global rollout of the vaccine, yields on longer term bonds began to rise in 2020-21. Additional stimulus in the United States and greater than anticipated inflation globally lifted yields on 10-year bonds over 2021-22.

Over the past few years, the 10-year bond rate has moved largely in line with the cash rate, which is determined by the RBA. The 10-year bond rate is affected by investor expectations regarding the medium-term direction of the cash rate. The 10-year rate tends to lead the short-term rates because of forward guidance given by the RBA and investor expectations and forecasts for the domestic economy. Concerns surrounding economic growth in 2018-19, both locally and abroad, led to expectations of rate cuts and further monetary policy easing. This weighed on global bond yields in 2018-19 before yields fell further in 2019-20, resulting from deteriorating economic conditions following the onset of the pandemic.

Economic recovery post-pandemic raised inflation, which prompted the RBA to increase the cash rate and provided an upward push to bond rates. At its November 2021 monetary policy meeting, the RBA discontinued its bond yield targeting, signalling an improved outlook for the Australian economy. Further cash rate rises have occurred in several monthly meetings through June 2023 to tackle inflation. In its November 2023 meeting, the cash rate rose to 4.35%, marking its highest level since December 2011. These factors contributed to growth in the 10-year bond rate over the past few years through the end of 2023-24. Overall, IBISWorld forecasts the 10-year bond rate to increase at an average annual rate of 0.60 percentage points over the five years through 2024-25.