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Cheapen with US Tsys Ahead of RBA Decision Tomorrow

AUSSIE BONDS

ACGBs sit slightly weaker (YM -1.0 & XM -1.0) after early gains inspired by US tsys strength ahead of the weekend are more than reversed over the Sydney session. With little meaningful macro news flow, the local market has traded with US tsys, which have cheapened in Asia-Pac trade, ahead of tomorrow’s RBA policy decision.

  • The RBA is expected to remain on hold at its policy decision meeting tomorrow, taking advantage of the Q1 core CPI undershoot to assess the impact of the 350bp of tightening that has been delivered.
  • RBA dated OIS is currently attaching a 12% chance of a 25bp hike versus 36% ahead of Q1 CPI data. Terminal rate expectations, which have centred on the August meeting, have also been scaled back with current pricing at 3.70%, 13bp of cumulative tightening.
  • Cash ACGBs are flat to 1bp cheaper with the AU/US 10-year yield differential +3bp at -11bp.
  • Swap rates are 1-2bp higher with EFPs slightly wider.
  • Bills strip pricing is -2 to +1 with mid-reds the strongest.
  • RBA Governor Lowe is scheduled to deliver a speech (1220 BST) after tomorrow’s decision.
  • Until the RBA Decision, the local market will be watching US tsys through the release of US ISM Manufacturing PMI later today.
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