Aussie Bond futures operate at best....>

AUSSIE BONDS: Aussie Bond futures operate at best levels, YMU8 has crossed above

the 55-DMA (97.846), with the next level of resistance noted at the July 20 high

(97.895). XMU8 is pushing up against hourly support from July 23 (97.315), which

now represents the initial level of resistance, with a break opening up a move

to the key 97.3850 area.

- The move higher comes after the softer than expected headline AU CPI release,

Today's inflation print is unlikely to alter the RBA's steady hand approach. As

a reminder the RBA's view is that "inflation is low & is likely to remain so for

some time," however, its central forecast is "for CPI inflation to be a bit

above 2.0% in 2018."

- The domestic 3-/10-Year yield spread has flattened back to ~56.5bp, but trades

off of lows and the AU/U.S. 10-Year yield differential has come under pressure

as Aussie Bonds outperform on the back of the CPI release, the spread last deals

at -25.1bp. The bill strip last trades unchanged to 4 ticks higher. Looking at

the IB strip, the May '19 contract is pricing in 5.0bp worth of tightening, or a

20% chance of a 25bp hike by the end of May '19.