Cheaper After CPI Beat

ACGBs (YM -3.0 & XM -3.0) reversed morning strength to be 5-6bps weaker after July’s CPI Monthly surprised slightly on the upside.

• July headline CPI inflation moderated to 3.5% y/y from 3.8%, slightly higher than expected, driven by lower electricity prices from government subsidies. The trimmed mean moderated to 3.8% from 4.1%, the lowest since January, but few services components were updated. The RBA is likely to look through July and wait for August and especially Q3 data.
• Cash US tsys are slightly cheaper in today’s Asia-Pac session.
• Cash ACGBs are 3bps cheaper, with the AU-US 10-year yield differential 2bps wider on the day at +11bps.
• The latest round of ACGB Dec-34 supply was smoothly absorbed, with the weighted average yield printing through prevailing mids. However, the lower outright yield did appear to hamper the overall strength of bidding today, with the cover ratio declining to 2.3125x from 2.7375x in mid-August and 4.2250x at the June auction.
• Swap rates are 2-3bps higher on the day.
• The bills strip turned this morning’s bull-flattener into a bear-steepener, with pricing -2 to -6.
• RBA-dated OIS pricing is 7-9bps firmer for 2025 meetings after the data. A cumulative 21bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Q2 Private Capital Expenditure data.