The yield spread between Australian and US 10-year government bonds has narrowed to 12 basis points and may turn negative.

Australia's benchmark government bond yield is set to fall below that of US Treasuries of the same maturity for the first time in over a year, due to diverging market expectations regarding the two countries' monetary policy paths. As the market increasingly bets that the Reserve Bank of Australia is nearing the end of its tightening cycle, while the Federal Reserve still has considerable room to raise rates, some strategists believe that Australian government bonds are likely to continue outperforming US Treasuries until the end of 2026. The yield spread between Australia's 10-year government bond and the US 10-year Treasury has narrowed to about 12 basis points, close to the smallest level since September 2025. Barrenjoey Markets and Westpac Bank expect the two countries' yields to converge over the coming months, while National Australia Bank even believes the spread could turn negative. Kenneth Crompton, Head of Rates Strategy at NAB Sydney, stated: “Our base case is that the yield spread between Australian and US 10-year government bonds will turn negative in 2027, but it would not be surprising to see this happen sooner. If policy expectations for Australia and the Federal Reserve diverge significantly, as we anticipate by the end of next year, the spread could easily test minus 20 basis points again.”