customers by reducing their standard variable rates. the average rates paid by borrowers have fallen in addition to the decline in standard variable rates because new borrowers have been offered even lower rates than most existing borrowers, and many existing borrowers have been able to refinance their loans at lower rates. graph 6 lending rates % outstanding housing % new housing variable fixed % outstanding % new business business sources : apra ; rba fixed loan rates have also declined as a result of the rba's package of policy measures. in particular, 2 other policy measures are influencing expectations of the future path of the cash rate and hence other benchmark rates out along the yield curve. first and foremost there is the bank's forward guidance. this is a commitment not to raise the cash rate target until inflation is sustainably within the 2 – 3 per cent target range. achieving that goal will require the labour market to become tight enough to generate a sizeable increase in wages growth. the board's assessment is that these conditions are unlikely to be met until 2024 at the earliest. the bank's target of around 10 basis points for the 3 - year australian government bond yield has worked to reinforce the bank's forward guidance and thereby guide market expectations around the cash rate target. together, these policies have helped to reduce interest rates on fixed - rate loans. indeed, fixed housing rates have declined by more than variable rates since the start of the pandemic in response to the bank's policy measures – so much so that there's been a noticeable increase in the share of new household loans at fixed rates ( graph 7 ). since late last year, the volume of loans fixed for 3 - 4 years has grown rapidly, albeit from a low base. as a result, a number of australian households have locked in low rates on their mortgages for some years. graph 7 fixed - rate housing credit proportion of total outstanding housing credit ; by residual term % % more than 3 years 2 - 3 years less than 2 years s d m j s d m j sources : apra ; rba the bond purchase program has also led to an easing in financial conditions by contributing to lower yields beyond the 3 - year mark. our estimates suggest that this program caused the yield on 10 - year australian government securities ( ags ) to be 30 basis points lower than otherwise, and has also reduced the spread relative to ags on securities issued by the states and territories. this lower level of yields puts

downward pressure on interest rates for governments, households and businesses, as well as downward pressure on the exchange rate. overall, the bank's package of policy measures has brought about very accommodative financial conditions in australia. the tff has been an important part of this package, and will continue to provide support in the years ahead. financial conditions while bond yields and interest rates remain very low, they have increased over recent months out beyond the shorter end of the yield curve. this is in response to the improved outlook for economic activity and inflation, both here and offshore. sovereign bond yields at the longer end of yield curves rose to around pre - pandemic levels earlier this year, underpinned by a rise in inflation expectations from very low levels to be more in line with central banks'inflation targets ( graph 8 ). graph 8 10 - year government bond yields % % 3. 0 3. 0 2. 5 2. 5 us 2. 0 2. 0 australia 1. 5 1. 5 1. 0 1. 0 0. 5 0. 5 0. 0 0. 0 sources : bloomberg ; yieldbroker the adjustments in financial markets to date are not a cause for concern, however. measures of inflation expectations have returned to levels of a few years ago, when inflation was consistent with, or even below, inflation targets ( graph 9 ). in other words, they don't point to inflation over the coming years sitting above central bank targets in a sustainable way. the increase in nominal yields has been smaller than the increase in expected inflation, which implies that real yields have declined ( graph 10 ). this is beneficial because it means that monetary policy is more stimulatory than otherwise. graph 9 expected and observed inflation % 2. 5 % 2. 5 10 - year inflation compensation * australia 2. 0 us 2. 0 1. 5 1. 5 1. 0 1. 0 germany 0. 5 % 0. 5 % headline consumer price inflation, year - ended - 1 - 1 * spread between the yield on nominal and inflation - protected government bonds sources : bloomberg ; rba ; yieldbroker graph 10 10 - year government bond real yields % % australia us germany - 1 - 2 - 1 - 2 sources : bloomberg ; rba ; yieldbroker the bank's yield target has ensured that the 3 - year ags yield remains around 10 basis points. but 3year yields in other domestic markets rose over the first few months of this