Back From Best Levels On Bid In Equities

An uptick in e-minis & Hong Kong tech stocks pressured Aussie bond futures away from their overnight peaks ahead of the weekend, with YM +9.0 & XM +2.5 at typing. The longer end of the cash ACGB is curve now running little changed to marginally cheaper on the day.

• Note that there hasn’t been much in the way of obvious short cover in YM to trigger the move away from cycle cheaps during recent sessions, with open interest little changed vs. levels observed at the time where the contract printed its current cycle low. There has been a modest down tick in XM open interest (2%) in recent days, although this isn’t particularly large in the grander scheme of things.
• The 3-/10-Year EFP box has twist flattened.
• The latest round of ACGB May-32 supply saw firm enough pricing, with the weighted average yield printing 0.65bp through prevailing mids, although the cover ratio wasn’t particularly firm, printing at 2.32x. Note that the auction was still comfortably covered, albeit with cover shy of that which was witnessed during RBA QE times.
• Next week will bring wage price data (our policy team’s latest insight piece flagged their understanding that the Reserve Bank of Australia is comfortable with wages growth exceeding the rate of inflation and sees this as a return to normal conditions and unlikely to drive higher prices and create more pressure for interest rate hikes) and the Bank’s May meeting minutes. Market pricing re: RBA tightening is back from recent extremes, but still aggressive, with a year-end cash rate of ~2.70% priced in the IB strip, per BBG WIRP. Elsewhere, there will be focus on the run in to the Federal Election (21 May), with the opposition Labor Party leading the opinion polls, and the latest monthly labour market report.