Australia: 10-Year Treasury Yield Falls to 14-Week Low After RBA Rate Hike

• Australian bond yields trail their US counterparts and refresh their multi-day lows.
• RBA rate hike fails to impress AUD bulls amid indecision over next move.
• The fear of a recession and the news about China reinforce the sentiment of risk aversion.

Australian bond markets celebrate the Reserve Bank of Australia (RBA) interest rate decision while refresh the minimum of 3 months and a half on Tuesday. However, the benchmark 10-year Treasury yield plummets to 3.00%the lowest levels since April 27.

The RBA matched market expectations by announcing a 50 basis point rate hike, the fourth in 2022, while inflating the benchmark rate to 1.85%. However, it should be noted that indecision over the Australian central bank’s next move, amid fears of a recession and as the rate nears policymakers’ “neutral 2.5% rate”, appears to choke Australian Treasury yields. The same could relate to the RBA statement saying that the central bank is not on the pre-established path of rate normalization.

Earlier in the day, the release of Australian Building Permits data for June contrasted with Australian Mortgage Loans and Investment Home Loans for the month, weighing on Australian markets.

It should be noted that the US House Clerk Nancy Pelosi visit to Taiwan and the likely difficulties for Chinese chipmakers due to US consideration of limiting shipments of US chipmaking equipment as well weigh on market sentiment and Australian Treasury yields.

Along the same lines could be the news from a Chinese media outlet suggesting that the dragon nation is prepared for a military drill in Bohai, in the South China Sea.

In addition, the Bloomberg article noting that there are no hard limits on Beijing’s GDP gross domestic product also appears to weigh on market risk appetite. The story quotes people familiar with the matter and says that “China’s top leaders told government officials last week that this year’s economic growth target of “around 5.5%” should serve as a guideline and not a fixed target to be achieved”.

On a broader front, the recently disappointing US PMI followed last week’s GDP data to portray economic fears. Indirect signals from Fed Chairman Jerome Powell that the hawks are running out of steam.

Elsewhere, Friday’s RBA rate report will be crucial as investors remain unconvinced about the Australian central bank’s next moves. Additionally, monthly US employment data due out on Friday will also be crucial to see if there are any clear directions.