How Much Higher Can Real And Nominal Yields Rise?

Westpac note that "3-Year futures-implied yield rose by almost 50bp last week. There have been very few weekly moves of that magnitude. You have to go back to the GFC and then prior to that to the re-calibration of RBA expectations prior to the beginning of the extended 2002-2008 tightening cycle. So it is unlikely that we see such extreme price action again soon, especially if the RBA shifts its guidance, as we expect. That will give the market some confidence that the RBA will not "fall behind the curve". So we are most likely in for a period of consolidation of new ranges before any further impulse higher."

• "Beyond that, it is right to ask whether recent moves imply even higher yields medium term. 10-Year BEI remains in the lower quarter of the RBA's range, despite last week's CPI. Indeed, they have not breached recent range highs even as nominal bond yields moved to new highs. That is because real yields have been rising fast - a reflection of Australia's growth expectations. Real yields are now approaching 0% for the first time since the pandemic begun, and in terms of orderly markets, since mid-2019, when they first went negative. We would expect this dynamic to be the major influence on nominal bond yields going forward, but there is likely going to be a lot of work done around current levels before the next push higher."