De-escalation Hopes Drive Yields Lower

• Comments from President Trump signalling potential de-escalation with Iran drove a sharp pullback in oil, bond yields and the USD, with Brent falling back toward $100/bbl.

• US Treasury yields declined materially in response, with the 2-year falling to 3.79% and the 10-year to 4.30%, Australian yields followed the global move lower, with the 3-year dropping to 4.69% and 10-year to 5.03%

• Markets are pricing a 60% chance of an RBA hike in May, reflecting persistent domestic inflation risks with an additional 1.5 hikes by end-2026.

• In the US, FOMC member Goolsbee noted the Middle East conflict is complicating the Fed’s outlook, emphasising the need to avoid reacting too quickly to short-term inflation shocks, while also warning against acting too late if inflation becomes entrenched.
• Attention now turns to Australia’s CPI tomorrow (consensus 3.8% y/y), though the read is expected to understate inflation pressures, as recent fuel price increases will only flow through in next month’s data.