Cheaper After CPI Monthly Surprises On the Upside

ACGBs remain stronger on the day (YM +4.0 & XM +6.0) but weaker post-data after April CPI monthly prints 6.8% y/y versus expectations of 6.4%. The 3-year futures contract gapped 8bp lower on the data but has subsequently reversed to be only down 2bp. A similar move was seen in the 10-year contract, which is now flat post-data.

• The reversal of fortune for ACGBs after the initial spike cheaper is likely linked to comments from the ABS that “…a significant contributor to the increase in the annual movement in April was automotive fuel. The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual movement for April 2023.”
• Other data released today included April Private Credit data which showed a 0.6% m/m rise, while the total value of Australia’s building work for private new houses fell 1.9% to A$9.2b in the first quarter from the previous three months.
• Cash ACGBs are 5-6bp richer on the day but 1-2bp weaker post-data with the curve flatter.
• The AU-US 10-year yield differential is 1bp wider after the data at -6bp.
• Swap rates are 3-4bp lower on the day and 1-2bp cheaper after the data drop.
• The bills strip twist flattens with pricing -4 to +7.
• RBA dated OIS is 2-4bp firmer after the data across meetings.