Back From Best Levels

The previously flagged weakness in U.S. Tsys has managed to drag the Aussie bond space away from early Sydney levels, with bull steepening still in place, albeit with less aggressive outright richening. That leaves YM +6.0 & XM +2.5, with Aussie 10s ~5bp wider vs. their U.S. counterpart, as the 10-Year yield differential moves back above +30bp, given the U.S. CPI-driven nature of Tuesday’s post-Sydney gyrations. EFPs are a touch wider, with the 3-/10-Year box seeing some modest steepening. Bills are flat to 9 ticks higher through the reds, bull flattening, albeit back from best levels as bonds pullback.

• The latest Westpac consumer confidence reading slid to levels not observed since late ’20, building on the heavy slide seen in Feb, with the survey noting that “at that time concerns around interest rates and inflation were starting to weigh on confidence. These were compounded by Russia’s invasion of Ukraine, an associated spike in petrol prices, and severe weather events.” A look deeper into the details revealed a split between the outlook of those that are more/less indebted, with Westpac flagging that “confidence amongst respondents with a mortgage fell by 9.2% in April amid concerns that the Reserve Bank will be raising the cash rate earlier than previously expected and at a faster pace. Responses to a separate question on mortgage rate expectations show that 70% of consumers expect rates to rise in the next 12 months, up from 67% last month. However, there has been a notable lift in the proportion of consumers expecting rates to increase by more than 1ppt, from 30% in March to 36% in April. Notably, the prospect of interest rate rises may have buoyed sentiment across some sub-groups that stand to benefit. Confidence posted significant gains amongst those aged over 65 (+7%) and amongst freehold homeowners (+5.5%). These are segments without large mortgage debts that are also more likely to depend on interest incomes.”
• Focus remains squarely on cross-market spill over, with the latest RBNZ decision due in ~45 mins time.