Bear Flattening, With Offshore Drivers Front & Centre

Aussie bonds took their cues from offshore matters on Thursday, with the major bond futures initially cheapening through their respective overnight session bases as Sydney reacted to the latest U.S. FOMC monetary policy decision.

• The space then stabilised off lows on the back of risk-negative Asia-Pac macro news flow, which centred on the latest North Korean missile launch, China’s focus on continuing with its zero COVID strategy and a slightly softer than expected Chinese Caixin services PMI print.
• That left YM -12.0 & XM -11.0 at the close, with wider cash ACGB trade seeing 9.5-11.5bp of cheapening as the curve bear flattened.
• EFPs pushed wider at the open before more than reversing the move to narrow sharply, pointing to receiver side flows aiding the stabilsation in ACGBs.
• Bills finished flat to -9, with RBA dated OIS now pricing a terminal rate of just under 4.20%, adjusting higher in sympathy with U.S. Fed terminal rate pricing post-FOMC.
• Local data failed to move the needle for ACGBs.
• Looking ahead, Friday will see the release of the RBA’s SoMP (although most of the major adjustments to the Bank’s economic forecasts were pre-released in Tuesday’s post-meeting statement, as is the norm) and the weekly AOFM issuance slate. A reminder that the AOFM has now announced JLMs for the syndication of the new ACGB May-34, which is set to come to market next week.