RBA Hope of No Recession Doubted On Crashing Yield Curve

Australia’s bond market is showing serious concern the central bank will push the country into a recession. The Australian key yield curve shrank to 13 basis points on Wednesday after data showed the economy slowed more than expected last quarter, while accelerating labor costs underlined the nation’s inflation challenge.

The key yield curve practically means the gap between yields on 10- and three-year government bond futures. That put the gauge on track for its lowest closing level since 2010, and defies the Reserve Bank of Australia’s goal to achieve a soft landing even after the steepest interest-rate hikes in a generation.

The RBA surprised investors on Tuesday with another rate increase and the GDP release spurred some in the market like Goldman Sachs Group Inc. to raise their expectations for further hikes. Traders are now pricing in another full hike by September. Now, a recession seems inevitable.