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Bull-Steepener Supported By US Tsys & An Unscheduled PBoC Easing

AUSSIE BONDS

ACGBs (YM +5.0 & XM +1.0) are flat to 3bps richer in a domestic data light session. As a result, the local market appears to have been driven by offshore factors. First, cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s twist steepening.

  • Secondly, China's PBoC, in an unscheduled operation, announced that the 1-year MLF rate has been lowered to 2.3% from 2.5% prior. This is the first reduction in the rate since August last year. The PBoC also did 200bn worth of MLF. The move lower in the 1-year MLF is in line with the earlier shifts this week in terms of the 7-day repo rate and the Loan prime rate cuts. It shows ongoing efforts to boost growth following recent disappointment in Q2 GDP/retail sales and the conclusion of the Third Plenum.
  • Cash ACGBs are 1-5bps richer, with the AU-US 10-year yield differential 3bps lower at +5bps.
  • The swap curve has bull-steepened, with rates 2-5bps lower.
  • The bills strip has twist-flattened, with pricing -1 to +8.
  • RBA-dated OIS pricing is 1-8bps softer across meetings, with 2025 leading. Terminal rate expectations sit at 4.42%.
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