Active Bill contracts finished the.....>

AUSSIE BONDS: Active Bill contracts finished the week 1-7 ticks higher, with the

reds leading the bid.

- Focus fell on NAB hiking its variable mortgage rates by 12-16bp citing an

increase in funding costs, with market reaction driven by the RBA's perceived

reaction function owing to the wealth effect i.e. lower for longer/increased

potential for cuts. The move came after the bank implemented a hike in new

borrower mortgage rates back in Nov, in the wake of the remainder of the Big 4

hiking their broader mortgage rates in Aug/Sep. Questions re: Sino-U.S. trade

talks also underpinned this week, while domestic labour market data had little

impact. 3-Month AU FRA/OIS has edged back from the widest levels seen since

July, with RBA repo rates operating back at ~2.00%, after printing at ~2.10%

earlier this week. Mkts now price in an increased chance of an RBA rate cut,

with the interpolated OIS method pointing to a 40.0% chance of at least 1 cut by

year end.

- Focus next week turns to domestic CPI data, ahead of the first RBA MonPol

meeting of 2019, scheduled for February 5.