Bear Flattening

Aussie bonds operate off their extremes, with cheapening in ACGBs on the back of the RBNZ’s monetary policy decision helping to pull the space away from best levels observed after a modest miss in Q2 wage price inflation data provided support. Cash ACGBs run 2.5-4.5bp cheaper across the curve, with 5s leading the way lower. YM is -4.5, back from a brief look above its overnight high, while XM is -4.0 after failing to test its own overnight extremes. EFPs are wider, with the 3-/10-Year box flattening, while Bills run 1 tick richer to 6 ticks cheaper through the reds.

• In terms of the details, Q2 wage price data saw a slight miss in both headline readings (+2.6% Y/Y vs. BBG median +2.7%; +0.7% Q/Q vs. BBG median +0.8%). A note that the reading was in line with the projections in the RBA’s latest SoMP and is not expected to move the needle re: the RBA’s near-term rate hike trajectory.
• STIR market pricing re: tightening for the RBA’s Sep meeting initially blipped lower to ~37bp before rising to ~41bp after the RBNZ’s monetary policy decision, sitting little changed from levels observed ahead of today’s risk events.
• The latest round of ACGB May-32 supply saw mediocre demand, with the cover ratio declining to 2.65x from the 3.00x observed at the previous auction, below the six-auction average of 2.83x. Things were firmer on the pricing side, with the weighted average yield printing 0.72bp through prevailing mids (per Yieldbroker). The lack of relative value due to the flatness of the ACGB curve as well as the structurally rich status of the line (due to its benchmark 10-Year status) likely contributed to the softer cover ratio at the auction, with the continued sidelining of international investors on uncertainty re: RBA policy, as well as the proximity of the auction to today’s Antipodean risk events, providing additional headwinds for demand.
• Looking ahead, labour market data for July will headline Thursday's domestic data docket, with little else on offer.