A sensational performance by Australian bonds last week has widened the negative spread between US and Australian 10-year bond yields to close to the highest point this century, amplified by expectations that the Reserve Bank is on hold well into 2019.

The gap between the 10-year Australian government bond yield and its US Treasury counterpart has increased to 22.7 basis points within a whisker of its May peak of 24.3 basis points, following a week that saw the Federal Reserve embed a fourth interest rate rise for 2018 into its forecasts, and the Reserve Bank governor assert that an increase in official rates "still looks to be some time away". The spread turned negative for the first time in 18 years in February, ending nearly two decades of Australian bonds enjoying a higher yield than Treasuries offer.

The yield on the Australian 10-year bond has slipped back to 2.69 per cent from February's high of 2.94 per cent. US Treasuries are trading around 3 per cent and settled at 2.92 per cent on Friday, having been as high as 3.11 per cent last month before early unease around trade disputes and Italy's commitment to the eurozone fuelled buying in safe-haven assets.

Reserve Bank governor Philip Lowe. Futures are now pricing in a cash rate of 1.62 per cent in one year's time. Daniel Pockett

Over the past five sessions, Australian yields fell three times more than that of Treasuries. While a singular reason for the outperformance proved elusive, several factors conspired to frame the course of events: supply was lower than expected, the futures contract rolled, and the outlook for US and Australian rates diverged further with the Fed's June meeting and updated guidance.

The monthly employment data also confirmed a trend of slowing jobs growth in the economy, even though the unemployment rate fell to 5.4 per cent from 5.6 per cent in May. For investors, that translated to a sound case for buying AAA-rated Australian debt.