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Free AccessAU/US Yield Differentials Narrow After Wages Data
ACGB yields reverse sharply after Q4 WPI undershoots expectations (3.3% Y/Y Vs. 3.5% Y/Y) and defies RBA business liaison intelligence that suggested a near-term pick-up in wage growth. YM and XM close -3.0 and -6.0 respectively after being down 16bp. Cash ACGB yields print 2-6bp cheaper with the 3/10 curve 4bp steeper. The AU-US yield differential narrows to -7bp.
- Swap rates close 2-6bp higher led by the 10-year.
- Bills close up 2-5bp, well off session cheaps.
- RBA-dated OIS gaps lower with WPI data for all meetings beyond April led by September which declines by 12bp. Terminal rate expectations close at 4.22%.
- Pricing for the near-term meetings was however little changed with the market convinced that the wage data was unlikely to force an RBA rethink of the "further increases in interest rates" message in the February Decision Statement. With the current government sympathetic to the unions and the Secretary of the ACTU on the newswires today saying “more needs to be done to get wages moving”, the RBA is unlikely to abandon its forecast for higher wages growth ahead.
- With U.S. Tsys heavy and WPI data providing a domestic catalyst, the recent bout of ACGB outperformance may have further to run.
- Australian Q4 Capex data is out tomorrow.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.