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iShares Yield Plus ETF (IYLD)
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iShares Credit Income Active ETF (ICME)
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iShares Treasury ETF (IGB)
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iShares 15+ Year Australian Government Bond ETF (ALTB)
https://www.blackrock.com/au/products/337679/
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In our new monthly series focusing on all things domestic economy, iShares Fixed Income Strategist Harrison Brown argues the latest RBA pause could pay dividends for bond investors.
Key takeaways
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01
After another hold from the RBA, markets are now pricing the cash rate close to today’s level over the next 12 months, leaving income to do more of the work for bond investors.
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02
A quiet year in bonds can pay a lot more than it did in previous years – if there’s no further move in yields this year, investors are getting paid almost 5% to wait for the RBA’s next move.
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03
Global volatility can still push Australian yields higher in the short term, creating opportunities to add exposure at more attractive levels when they jump.
Rates stay higher as bond yields move sideways
Amid the steady stream of headlines - sticky inflation, oil-price spikes and recurring nerves about long-term US bond yields - it is easy to miss how quiet the Australian bond market has been for much of the year.
The Reserve Bank raised the cash rate in February, March and May, taking it to 4.35 per cent. Since then, government bond yields have mostly moved sideways, albeit at levels that would have looked unusually high only a few years ago.
The data does not point to a big move either way, indicating rates may stay ‘higher for longer’. Inflation is still above the RBA's 2-3 per cent target range and unemployment is 4.4 per cent, so the Bank has little reason to rush into cuts. At the same time, the economy is not running so hot that another long run of rate rises is the obvious answer.
While bond yields can still jump around, but there is no clear domestic reason for them to leave the recent range. Current market pricing is much the same and it leaves a broadly rangebound market as a reasonable base case.
Markets are fading the chance of further rate rises
Source: Reuters and Reserve Bank of Australia. Market pricing as at 11th August 2026; market-implied rates can change.
The chart below shows why that matters. In 2021, the 3-year Australian government bond yield spent most of the year below 0.5 per cent, while the 10-year bond yield stayed almost entirely between 1 and 2 per cent.
By late July this year, they were around 4.5 per cent and 4.9 per cent. So even if yields simply stay around these levels, investors are being paid much more while they wait.
Australian bond yields are far higher than in 2021
Australian government bond yields and the RBA cash rate target, January 2021 to July 2026
Source: Reserve Bank of Australia, F1 and F2 daily data. Data through 29 July 2026.
A range-bound market is really an income market. Bond prices will still rise and fall, especially at the long end, but if yields finish the period close to where they started, price movement won’t be a major contributor to total returns. What an investor receives is the income collected along the way.
During the low-yield period of 2021, a rangebound year could leave bond investors with very little. Today, the starting income is high enough to make a meaningful contribution to a portfolio without yields needing to fall.
Where investors can find opportunities in today’s bond market
Two options for credit exposure
Credit markets provide additional yield for lending to companies rather than governments. IYLD and ICME offer two different ways to access it.
- The iShares Yield Plus ETF (IYLD) provides diversified index exposure to Australian investment-grade corporate bonds ex Big-4 Banks. Its short-duration portfolio helps limit sensitivity to changes in government bond yields, while providing an attractive current yield of ~4.9 per cent1, with distributions paid monthly and a competitive fee of 0.12%.
- The iShares Credit Income Active ETF (ICME) is the active option. BlackRock's experienced fixed income team allocates to Australian securities across subordinated and senior debt, hybrids and securitized sectors. It has a current yield of ~6.4% and an effective duration of ~1 year2.
The fund aims to provide monthly income and has a yield target of 150bps over the RBA cash rate after fees. With a management fee of 0.29%, it is also a competitively priced option for active management in the Australian market.
Adding interest rate exposure when yields push higher
The other opportunity comes when global noise pulls Australian bond yields higher. A jump in oil prices or a sell-off in US Treasuries can lift local yields even when domestic fundamentals - inflation, employment and the RBA outlook - have not changed.
When the market move is larger than the change in the local outlook, it can offer a better entry point for investors adding longer duration funds with more interest rate exposure.
- The iShares Treasury ETF (IGB) holds Australian government bonds with an average maturity of ~6 years. With a yield to maturity of ~4.7%3, it can provide income while adding enough interest rate exposure to contribute meaningful price gains to a portfolio if yields fall, without the magnified volatility of longer-dated bonds.
- The iShares 15+ Year Australian Government Bond ETF (ALTB) is the more targeted long-dated option. Its price moves much more than IGB when yields change - more upside if long-term yields fall, but more downside if they rise.
It’s worth noting that since March, the Australian government 10-year yield has moved above 5 per cent several times and then fallen back below it. That pattern suggests that demand has emerged around those levels, although it is not a hard ceiling.
In 2021, a sideways year in bonds was close to a wasted one. At today's yields, the income is high enough to contribute meaningfully without the need for large price movements in bonds to drive returns, while headline-driven volatility gives investors a chance to add exposures at attractive historical yields.
Our August implementation ideas at a glance
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Harrison Brown
iShares Fixed Income Strategist
