Australia’s federal government debt is set to cross $1 trillion for the first time, with Treasury projections putting it at $1.022 trillion by June. That figure alone is significant. But this week, it was the cost of carrying that debt that moved sharply higher.

On 11 March, the 10-year Australian government bond yield briefly touched 5% — a level not seen since July 2011. That is the benchmark rate used to price government borrowing. With the annual interest bill already above $20 billion, economists estimate that a sustained half-percentage-point rise in yields would add another $4 billion to $5 billion a year.

For context, Australia’s 10-year yield has risen 58 basis points over the past 12 months alone.

What’s Driving It

The Strait of Hormuz has been disrupted since 28 February, when US-Israel strikes on Iran triggered a supply shock in the world’s most critical oil chokepoint. Around 20% of global oil supply passes through the strait. Brent crude briefly surged above US$120 a barrel on 9 March before volatile trading pulled it back to around US$91 by 11 March. Australian petrol prices are already up 17% since the conflict began.

The inflationary impact is immediate. RBA Deputy Governor Andrew Hauser warned on 9 March that the oil price surge could push inflation above the central bank’s 4.2% forecast, and that the conflict may force the RBA to raise interest rates within days.

The RBA already lifted the cash rate to 3.85% in February. Commonwealth Bank economists now expect another hike to 4.10% in May. Australia’s bond yields are sitting above those in the US, UK, Canada, New Zealand and much of Europe, reflecting stickier inflation and relatively stronger economic growth.

Bond markets are pricing in what some strategists describe as “stagflation light” — inflation holding above 3%, growth slowing towards recession, and a loosening labour market.

By the Numbers

• Federal gross debt: approaching $1 trillion (~33% of GDP, or ~50% including states and territories)
• Annual interest bill: above $20 billion and rising
• Gold in AUD: ~A$7,297 per ounce as of 11 March, up roughly 57% in six months
• Gold in USD: recently hit a cycle high near US$5,600 per ounce; Bank of America has lifted its 2026 forecast to US$5,000/oz
• Silver in AUD: up approximately 125% over the past 12 months
• Brent crude: up more than 20% since the conflict began

Where Does Bullion Fit?

The conditions driving markets right now are familiar to precious metals investors.

The stagflation of the 1970s. The post-GFC stimulus years. The COVID-era money printing. Each period was marked by rising government debt, persistent inflation and heightened geopolitical risk. Each also saw significant moves in gold and silver.

Physical bullion carries no counterparty risk. It does not rely on a government’s ability to service its debts or on a central bank’s next policy move. When bond markets sell off because investors are questioning fiscal discipline and inflation control, that has historically been one of bullion’s strongest backdrops.

Gold’s performance in AUD over the past six months, and silver’s over the past 12, reflect that dynamic playing out now. Whether it continues will depend on how the conflict, inflation and monetary policy evolve from here.

The Bigger Picture

The era of near-zero borrowing costs that ran from the GFC through to COVID is over. Governments are once again paying real rates on real debt, and that cost flows through to households, businesses and markets.

A trillion dollars in government debt is not a passing headline. It is a structural shift worth watching.

Ainslie Bullion is a proud sponsor of the Block Earner Roadshow running across Australia this March. Last tickets for tonight’s Brisbane event: https://luma.com/78czwcqb. Melbourne and Sydney still available at https://luma.com/user/blockearner