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Aussie Bonds Firm On Above-Forecast CPI Data, Curve Flattening Deepens

AUSSIE BONDS

Aussie bonds went offered on the release of expectation-beating Q3 CPI data, which cemented the case for a 25bp hike to the cash rate target next week. Headline consumer inflation accelerated to a 32-year high of +7.3% Y/Y, beating the +7.1% median estimate. Trimmed mean CPI also rose faster than forecast, printing at +6.1% Y/Y versus the +5.5% consensus forecast.

  • The data inspired a light boost to hawkish RBA rate-hike bets for next week's meeting. Swaps now fully price a scenario, whereby policymakers would raise the cash rate target by 25bp.The follow through to terminal rate pricing was negligible.
  • Australia's Q3 CPI report helped mitigate the impact of tech-led weakness in U.S. equity-index futures & overnight sell-off in U.S. Tsys. Cash ACGBs trimmed their opening losses as a result and the RBA-sensitive 3-Year yield returned to neutral levels, yet the flatter yield structure remained, with 3-Year/10-Year tightening post-CPI. Cash ACGB yields sit unch. to -12.8bp as we type.
  • Aussie bond futures showed a similar response to the data, taking nosedives as CPI figures crossed. YM last trades +1.0 & XM +10.5, both off reaction lows as e-minis still operate in the red. Bills run -7 to +5 ticks through the reds.

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