ABE Weekly: Inflation Eases as Long-Term Yields Rise

Market Insights

• Australia’s Inflation Continues to Move in the Right Direction
• US Banks Signal Strength Across Corporate America
• US 30-Year Treasury Yield Climbs Back Above 5%
• Europe’s Heatwave Exposes Economic Vulnerabilities
• Coming Soon: A New A$ Credit-Linked Note Opportunity

Key Points

• Australia: The RBA left the cash rate unchanged at 4.35% p.a. at its June meeting. June CPI eased to 3.8% p.a., while Trimmed Mean was unchanged at 3.60% p.a.
• United States: The Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% p.a. at its July 2026 meeting. The latest U.S. CPI inflation rate is at 3.5% p.a. in June 2026. Core CPI moderated further to 2.6% p.a.
• United Kingdom: The Bank of England held the Bank Rate steady at 3.75% p.a., and headline CPI for June was 2.6% p.a., down from 2.8% in May. Core inflation was unchanged at 2.6% p.a.
• Eurozone: The European Central Bank left its key deposit facility rate unchanged at 2.25% p.a., and Euro area CPI eased to 2.8% p.a. in June, down from 3.2% p.a. in May.

Here are the latest monetary-policy and inflation figures for key economies:

Australia’s Inflation Continues to Move in the Right Direction

Australia’s June quarter inflation data came in slightly below expectations, providing further evidence that price pressures continue to moderate. Headline inflation increased by 0.6% over the quarter, below the 0.7% consensus forecast, while annual inflation eased to 3.8% from 4.0%. More importantly, the RBA’s preferred measure of underlying inflation rose by 0.8% over the quarter, below market expectations of 0.9%, leaving annual trimmed mean inflation at 3.6%.

The inflation data was released just a day after RBA Governor Michele Bullock reiterated that returning inflation to target remains the Bank’s primary objective. While maintaining that the Board remains prepared to tighten policy further if required, Bullock acknowledged that economic activity is evolving broadly as expected and noted that the housing market has softened more than the RBA anticipated. She also reinforced that future policy decisions will remain firmly data-dependent rather than follow a predetermined path.

Expectations for an August rate hike eased further, with investors increasingly of the view that the RBA has likely delivered sufficient tightening and will now have the opportunity to assess how previous rate increases continue to work through the economy.

Why it matters: For fixed income investors, the combination of softer-than-expected inflation and the RBA’s continued data-dependent approach strengthens the case that the cash rate is at or near its peak. While the Board remains vigilant on inflation, moderating price pressures and slowing domestic demand suggest the hurdle for any further tightening has become materially higher. As a result, upcoming labour market and inflation data will remain the key drivers of bond market expectations over the months ahead.

US Banks Signal Strength Across Corporate America

US earnings season is still in its early stages, but the opening act has been impressive. With the major banks having now reported, results have comfortably exceeded expectations across most key metrics. Strong net interest income, robust fee generation, disciplined expense management, and lower credit provisions combined to deliver another quarter of exceptional profitability. Investment banking activity has also reaccelerated, while management commentary remained constructive, with several CEOs noting that deal pipelines continue to build.

Why it matters: These results reinforce the view that corporate credit fundamentals remain healthy. Banks sit at the centre of the financial system and are often an early indicator of broader economic and corporate conditions. Strong profitability, benign credit losses and declining loan loss provisions suggest that both consumers and businesses continue to service their debt obligations effectively. While credit spreads remain relatively tight, the early earnings season provides little evidence that corporate credit risk is deteriorating.

US 30-Year Treasury Yield Climbs Back Above 5%

The US Federal Reserve left the federal funds rate unchanged at 3.50%–3.75%, as widely expected. However, the meeting took a hawkish tone, with three policymakers dissenting in favour of a 25 basis point rate increase, reflecting continued concern that inflation remains above the Fed’s 2% target.

Chair Kevin Warsh reiterated his strict stance on inflation, declaring that the central bank will deliver price stability and has “no tolerance” for elevated prices. Moving away from the forward guidance used by his predecessor, Warsh emphasised a simplified approach designed to “just give you the facts” while remaining intensely focused on returning inflation to the Fed’s 2% target. While acknowledging recent signs of cooling, he warned that the Fed is prepared to keep monetary policy highly restrictive for as long as necessary to fully vanquish persistent price pressures.

Markets interpreted the overall message as modestly hawkish, with Treasury yields rising as investors pared expectations for near-term policy easing. The move was most pronounced at the long end of the curve, with the 30-year Treasury yield climbing back above the psychologically important 5% level to finish at 5.20%—the highest since 2007. Investors continue to demand higher compensation for holding longer-dated government debt, reflecting a combination of persistent inflation concerns, resilient economic growth, elevated Treasury issuance and uncertainty around the long-term fiscal outlook. The rise in long-term yields effectively tightens financial conditions independently of any further Federal Reserve rate increases, increasing borrowing costs across mortgages, corporate debt and other long-term financing markets.

Europe’s Heatwave Exposes Economic Vulnerabilities

Europe’s prolonged heatwave is becoming more than just an environmental event, with growing implications for economic activity and supply chains. Water levels on the Rhine River, one of Europe’s busiest commercial waterways, have fallen towards critically low levels, forcing barges to reduce cargo loads and increasing transport costs for fuel, chemicals and industrial goods moving through Germany, the Netherlands and Switzerland.

At the same time, widespread wildfires across southern Europe have disrupted transport networks, tourism and agricultural production, adding further pressure to an economy already experiencing subdued growth.

Why it matters: While these disruptions are unlikely to materially alter the global growth outlook on their own, they serve as a reminder that climate-related events are important macroeconomic considerations. Rising freight costs, supply chain disruptions and pressure on agricultural output can all contribute to higher inflation volatility and weaker regional growth, complicating the outlook for policymakers and financial markets.

Coming Soon: A New A$ Credit-Linked Note Opportunity

We are currently developing a new ABE Credit-Linked Note, which we expect to launch in the coming weeks.

The investment will follow our familiar ABE structure, offering exposure to leading global companies over a 4-5 year term, while targeting a fixed coupon in the range of 6.50%-8.00% p.a.

As always, the transaction will only proceed once our investment committee has completed its comprehensive credit assessment and due diligence process.

If you would like to receive the indicative term sheet as soon as it becomes available, please contact the ABE Capital team to register your interest.

Further details, including the reference entity, final coupon and investment terms, will be released once the transaction is ready for launch.

---