10s Back At 4.00%

10-Year ACGB Yields are trading at ~4.00%, ~25bp shy of the ’22 double top. The ~75bp shift higher in recent weeks is leading many to question what has changed? In short, not much, at least from a headline/economic outlook perspective.

• Cross-market dynamics (most notably vs. the U.S. Tsys, but also vs. NZGBs) point to the exit of long ACGB spread trades vs. their major counterparts.
• Meanwhile, terminal RBA cash rate pricing has moved up to ~4.00% from the ~3.50% seen in early to mid-December, even after the Bank stepped down its pace of tightening during the latter part of ’22 (the return of the RBA being “behind the curve” trade).
• With cross-market trades now less crowded, and Aussie 10s providing a premium vs. their U.S. counterparts, in addition to a more attractive outright yield level, participants may look to deploy some capital in the ACGB space as ’23 gets underway.
• Early staging posts for global FI markets in ’23 include the minutes from the latest Fed meeting, the monthly NFP report from the U.S. & Eurozone CPI data, all of which cross this week.

Fig. 1: Australian 10-Year Yields (%)

Source: MNI - Market News/Bloomberg