Rates Vol Watch: AU rates vol – long fwd vol through receiver calendars

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Rates Vol Watch: AU rates vol – long fwd vol through receiver calendars

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Rates Vol Watch

AU rates vol – long fwd vol through

receiver calendars

Macro backdrop – lower growth and higher inflation 11 May 2026

The RBA cash rate now stands at 4.35%, the highest among G10 central banks following Rates Research

an 8-1 decision in May. While a cash rate above 4.35% cannot be ruled out, our base United States

case is that the RBA will hold the cash rate at 4.35% through to mid ‘27, as it balances Bruno Braizinha, CFA

higher inflation against a weaker labour market outlook under its dual mandate. Rates Strategist

BofAS

The distribution of risks to inflation remains skewed to the upside given the higher +1bruno.braizinha@bofa.com646 743 7012

starting point for inflation in Australia and supply disruptions in the ME. Our economists Oliver Levingston

expect inflationary pressures will persist with headline inflation increasing 4.9% yoy in FX and Rates Strategist

2Q26 and averaging 4.4% over ‘26. At the same time, GDP growth is forecasted to be Merrilloliver.levingston@bofa.comLynch (Hong Kong)

2% for ‘26 and 1.7% for ’27 (a downward revision from the YA26 forecast of 2.2% and Isabel Hartstein

2.0% for ‘26 and ’27, respectively). FX & Rates Strategist

Merrill Lynch (Australia)

While near term inflation remains high, we expect 2y & 10y yields to hold around current isabel.hartstein@bofa.com

spot rates of 4.65% & 4.95% respectively, before steadily retracing lower over 2H26,

and maintaining the relatively flat shape of the curve. Overall, we remain bullish rates.

Our end ‘26 forecasts are 4.55% for 2y and 4.85% for 10y. This is higher than our

previous forecasts given ongoing supply-chain disruptions, but in our view, markets Glossary: