BOJ Talk & Well-Digested Supply Assists Mid-Session Reversal

Early weakness gives way to a bull flattening of the curve with YM +3.0 and XM +6.0 at the close. A JGB-inspired bid for ACGBs builds over the session, aided by U.S Tsys strength, leaving bonds 3-6bp stronger. Firm demand at the latest ACGB Nov-29auction wouldn't have done the bid any harm. 3/10 cash curve closes -2bp.

• AU/US cash yield differential closes at -3bp after touching flat early.
• Swaps, mirroring bonds, close at the day’s high with rates 2-6bp lower and the curve 3bp flatter.
• Bills are +1-4bp led by the reds.
• Subdued trading in RBA-dated OIS leaves pricing little changed on the day with a 95% chance of a 25bp hike priced for the March meeting and terminal rate pricing around ~4.28%.
• Next week sees the local calendar deliver a batch of quarterly partial releases leading up to the release of Q4 GDP on Wednesday. With WPI’s undershoot sparking an ACGB rally this week, the market will give the National Accounts’ Compensation of Employees measure a cursory glance to see if it tells a similar story. Monthly reads on January Retail Sales and Private Sector Credit are also due early in the week.
• Also on the calendar next week is the AOFM’s now standard issuance of A$1.5bn of ACGBs, split between A$300mn of ACGB May-47 on Monday & A$1.2bn of Nov-32 on Wednesday.