Treasurer Jim Chalmers spoke to the 63rd Australia–Japan Joint Business Conference in Chiba on October 5. He said Commonwealth bond yields are at 15-year highs, that the government will refinance cheap older debt at higher rates, and that annual interest payments, already larger than spending on the Pharmaceutical Benefits Scheme, will keep rising. He cited a 15-year high for Australian 10-year yields in the past month, a 24-year high in the United States and a 30-year high in Japan. On Sunday he told ABC's Insiders that a savings package will feature in the mid-year budget update, due in mid-December, and downplayed fresh cost-of-living relief. The Reserve Bank raised the cash rate to 4.60 per cent on September 29, its fourth rise of 2026. On Monday the S&P/ASX 200 closed at 8,686.4, up 0.05 per cent, with NSW, the ACT and South Australia on a public holiday. Bank of America's Mark Cabana separately warned super funds that US rate expectations in the high 4s to mid 5s per cent could tighten financial conditions.
Interest is now one of the fastest-growing lines in the federal budget, and it competes with every other promise a government wants to make. When the Treasurer says so abroad, in front of investors, he is also speaking to the markets that buy Australian debt. For households the same yields set the cost of fixed-rate home loans.
If you have a mortgage, the cash rate at 4.60 per cent is already in your repayments, and the AFR reports that banks are lifting fixed rates faster than the RBA. If you are in super, about half of the system's money is invested offshore, so what happens to US rates reaches you through your balance. The next RBA decision is November 3.
Rising yields are a global event, not a local failing. The Treasurer is right to say so plainly and to commit to savings in December rather than hand out money that would feed inflation.
The Opposition and AFR commentators argue that government spending is part of the inflation problem and that the Treasurer is blaming markets for a bill his budgets helped build.
Watch two numbers: the Australian 10-year yield, which has moved above 5 per cent, and the dollar, which is sitting near 69 US cents. If yields keep climbing, the savings package in December will have to be bigger than the one Chalmers described on Sunday. We will not know that until the update itself.
Treasurer's media releases (Chiba, Oct. 5) · The Nightly · investinglive · Canberra Times/AAP (OECD) · ABC News (RBA decision Sept. 29; Insiders Oct. 4; ASX live blog; The Business Oct. 1) · AAP via Morningstar and Investing.com (close) · Bank of America remarks via ABC and secondary reports · Yardeni Research (RBA fourth hike)
Chalmers warns the interest bill is rising as bond yields climb worldwide. The cash rate is already 4.60%
Speaking in Japan, the Treasurer said Commonwealth bond yields are at 15-year highs and debt interest now costs more than the PBS. The sharemarket finished flat on a thin, holiday Monday.
Treasurer Jim Chalmers used a speech to the Australia–Japan Joint Business Conference in Chiba on Monday to deliver a blunt message about the national accounts. Commonwealth bond yields are at their highest in 15 years, he said, and because cheap debt issued in earlier years is maturing and being refinanced at today's rates, the annual interest bill will keep climbing. He noted that interest payments already cost more than the Pharmaceutical Benefits Scheme. He placed the problem in a global setting: Australian 10-year yields reached a 15-year high within the past month, American 10-year yields a 24-year high and Japanese 10-year yields their highest in about three decades. Even a country with Japan's asset base, he said, will have to reckon with higher financing costs. He argued that budget settings were not the main driver of prices.
The speech followed an interview on ABC's Insiders on Sunday in which Chalmers said a savings package will feature in the mid-year budget update, due in mid-December, and played down the prospect of more cost-of-living relief. The Reserve Bank lifted the cash rate to 4.60 per cent on September 29, its fourth increase this year and the highest level in about 15 years. Governor Michele Bullock said the board did not take the decision lightly. The next decision falls on November 3, Melbourne Cup Day, and the governor has said the bank is in no rush. Markets have been unsettled. On October 1 the sharemarket shed about $60 billion in value as bond yields jumped, and ABC's The Business described a week of big swings that still ended with the S&P/ASX 200 up 0.2 per cent at 8,682.
Monday was quieter. New South Wales, the ACT and South Australia were on a Labour Day holiday, and the S&P/ASX 200 closed at 8,686.4, up 4.3 points, led by miners and healthcare. BHP gained 1.1 per cent and Cochlear 3.96 per cent. The Australian dollar bought about 69.4 US cents. Bank of America's head of rates strategy, Mark Cabana, met Australian super funds and told them that if United States rate expectations move into the high 4s or mid 5s per cent, tighter financial conditions could weigh on the offshore assets that make up about half of institutional super portfolios. That is an analyst's warning, not a forecast.
The bond market has been the story for weeks. ABC reported on September 1 that the 10-year Commonwealth yield had reached 5.16 per cent, the highest since April 2011, and on September 27 described the largest market correction in generations, with yields at two-decade highs. On Monday the AFR reported that banks are lifting fixed rates faster than the Reserve Bank as their own funding costs deepen. In the same paper, one columnist argued the government has squandered a global budget boom, and another reported that even Labor's think tank believes government spending feeds inflation. Those are opinions, but they show where the argument is heading: whether the pressure on the budget comes from markets or from policy.