Bear Flattening On Fed Repricing

Aussie bond futures were subjected to bear flattening pressure in the wake of the firmer than expected U.S. CPI print and subsequent repricing of expectations re: Fed tightening.

• The impetus from the Fed repricing is leaking into Australian OIS, with RBA Oct dated OIS pricing ~38bp of tightening vs. ~32bp of tightening at yesterday’s close, while terminal rate pricing now sits at ~3.75%, a little firmer vs. yesterday, albeit well shy of the cycle peaks observed back in June.
• A reminder that markets had adjusted to pricing a shallower pace of rate hikes after RBA Governor Lowe’s latest address.
• YMZ2 -15.2 and XMZ2 -11.0 shortly after the Sydney open, off of overnight lows, with YM’s post-Sydney base holding on an early test. Bills run 13-20bp cheaper through the reds.
• Local news flow has been relatively limited since Tuesday’s Sydney close.
• We re-flag our policy team’s latest insight piece which highlighted their understanding that “the RBA remains confident that longer-term demand for homes in major cities and supply constraints will support a rapidly-cooling housing market”.
• The local docket is non-existent today, which will leave local adjustment to Tuesday’s post-Sydney developments at the fore.