(Bloomberg) -- Short-end Australian bond yields climbed to a three-week high as traders bet the central bank will ramp up its pace of tightening after a similar move by the Bank of Canada.
Three-year yields soared as much as 11 basis points to 3.003%, the highest since May 9. Overnight index swaps suggest the the Reserve Bank of Australia will deliver a 40-basis point hike at its review on June 7.
Major central banks are accelerating the pace of rate increases to contain inflation as the war in Ukraine drives up the price of commodities from grains to oil. In Australia’s case, better-than-expected first-quarter growth figures have helped cement expectations for higher borrowing costs, with the likes of Australia & New Zealand Banking Group (OTC:ANZBY) Ltd. boosting its rate hike calls.
“We do not see an argument why Australia is so different to the rest of the world for inflation pressures,” said Tony Morriss, head of Australian & New Zealand economics and rates strategy at Bank of America (NYSE:BAC). “They are very much behind the curve so would expect much stronger hawkish guidance next week.”
The rise in three-year yields looks stretched but the move may extend if the RBA adopts a hawkish stance at its upcoming review, he said.
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