Australia’s 10-year government bond yield rose toward 5%, moving back to multi-decade highs as renewed clashes between the US and Iran weakened hopes for a near-term peace agreement and reignited inflation concerns. The latest escalation followed US attempts to exit a conflict now in its third month, while awaiting Iran’s response to its proposal to reopen the Strait of Hormuz, a vital waterway for energy flows. The near-closure of the strait and the resulting energy price shock have fueled concerns about rising inflation, which could keep interest rates higher for longer. In Australia, markets are pricing around just a 20% chance of another rate hike in June by the Reserve Bank, after 75 bps of tightening to 4.35% over the past three meetings. The probability rises to about 68% for August, with a terminal rate near 4.6% almost fully priced in by September. Meanwhile, March data showing Australia’s first goods trade deficit since 2017 suggests net exports will drag on quarterly growth.