Bear Flattening

Aussie bonds are at cheapest levels of the day as we move towards the Sydney close, with the move in futures extending through overnight lows in recent dealing. Cash ACGBs run 4.5-6.5bp cheaper across the curve, bear flattening, while YM and XM are -5.0, respectively. Bills run 1 to 9 ticks cheaper through the reds, bear steepening.

• There has been a lack of relevant macro headlines and the tight trade in U.S. Tsys (noting the proximity to U.S. CPI due later today), providing little in the way of lasting direction for the space through Sydney dealing.
• The latest round of ACGB Nov-31 supply went well on the pricing side, with the weighted average yield printing 0.97bp through prevailing mids (per Yieldbroker estimates), although the cover ratio slipped further to 2.28x (from 2.67x previously), well below the six-auction average at 3.55x. Uncertainty surrounding the RBA may have kept overseas investors sidelined, limiting demand at the auction. Meanwhile, the relative value of the line against 3s was noted to have been limited due to the flatness of the curve, while the 10-Year zone of the curve was seen to have been operating towards the richer end of the YtD range on the 5-/10-/15-Year butterfly, with both observations being negatives for demand for the line.
• Elsewhere, little by way of a meaningful market reaction was observed in ACGBs on the release of lower-than-expected Chinese inflation data, with CPI noted to have come in at two-year highs.
• Thursday will see consumer inflation expectations for August headline the domestic data docket, with little else on offer.