Australian 10-Year Bond Yield Hits 15-Year High Amid Global Sell-Off

The yield of the Australian government's 10-year bond has climbed to a 15-year high, in a worrying sign for Australian borrowers.

The bond is an IOU, with the buyer of that particular bond receiving fixed payments for money lent to the Australian government for a decade, but now bonds are being sold off due to market concerns about inflation.

Japanese, British and US government bond yields have also surged, demonstrating growing global concern about debt and inflation.

The Australian government's 10-year bond yield has climbed to a 15-year high in a worrying sign for Australian borrowers.

In afternoon trade, the interest rate on the bond was 5.16 per cent.

It reached 5.24 per cent in April 2011 before a steady decline until the COVID-19 pandemic in 2020, when it began to climb from a low of 0.55 per cent.

Why are bonds being sold off?

A bond is an IOU, with the buyer of a particular bond receiving fixed payments for money loaned to the Australian government for a decade.

Now Australian bonds are being sold off because the market is concerned about inflation.

Bonds lose their value as inflation expectations increase. So investors seek higher compensation for this by demanding a better interest rate in the bonds.

The price of a bond and its yield move in opposite directions. So the lower bond prices fall, the higher its interest rate rises.

This is a problem, says AMP's chief economist Shane Oliver, given Australia's gross national debt recently surpassed $1 trillion.

"The rise in the Australian government's 10-year bond yield reflects a combination of rising yields globally and ongoing inflation concerns locally," Dr Oliver said.

"It's bad news because it means rising interest costs on public debt, meaning less money left over for government services, raising corporate borrowing costs and higher fixed mortgage rates, making it harder for new home borrowers."

Longer-term bonds, like 10-year bonds, tend to influence the big banks' fixed rate mortgage products.

Shorter-terms bonds, like 3-year bonds, and the Reserve Bank's cash rate, influence variable rate mortgage products.

Rising inflation concerns are lifting the interest rates on both longer-term and shorter-term bonds.

The three-year bond, for example, saw its yield jump seven basis points or 0.07 percentage points to 4.73 per cent this afternoon.

A global phenomenon

It's part of a global bond market sell-off, which is leading yields to multi-decade highs.

Earlier today, Japan's 10-year government bond yield rose to 3 per cent, its highest since September 1996.

The 10-Year British and US government bond yields have also surged today.

The US government's debt burden has now surpassed $US40 trillion and the market is not convinced the Trump administration is clear on how to reduce it.

Last week, the US 30-year Treasury bond yield rose to 5.2 per cent for the first time in 19 years, when the global financial crisis was in full swing.

That's the return on lending money to the American government for three decades.

And those ultra-long-term US borrowing costs have risen even further, to 5.28 per cent, for the first time since 2006.

When a government's interest rate bill rises to such high levels, it shows people are worried about how debt and inflation will unfold.