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  • Australia’s two-year has risen sharply on status quo RBA decision.  
  • The central bank is still on track to cut rates in the second half of the year.  

The Reserve Bank of Australia (RBA) kept the cash rate unchanged at 1.5% earlier today, sending the yield on the two-year government bond yield higher by 10 basis points.

The yield has jumped to 1.37% from the record low of 1.27% seen ahead of the RBA’s rate decision.

The markets were divided on whether the central bank will move rates today. For instance, Australian cash rate futures had put the probability of a 25 basis point rate cut at today’s meeting at 47%.

The spike seen in yields could be due to traders unwinding their long bond positions initiated in anticipation of a rate cut.

Looking forward, the surge in yields could be short-lived, as the policy statement has taken note of the disappointing first-quarter inflation data, leaving the doors open for a rate cut in the second half of the year.