Cheaper After RBA Gov. Lowe Speech Release

ACGBs are 2bp weaker (YM -4.0 & XM -1.5) after the release of RBA Governor Lowe’s speech, titled "A Narrow Path" at the Morgan Stanley Australia Summit.

• "Finally, putting all this together, we remain on the narrow path but there are significant risks. We are particularly attentive to the risk that inflation stays too high for too long. If that happens, expectations will adjust, high inflation will persist, interest rates and unemployment will be higher and the cost-of-living pressures on Australian families will continue. The Board is seeking to avoid this. Yesterday’s further increase in interest rates provides greater confidence that inflation will come back to target within a reasonable timeframe.”
• “Some further tightening of monetary policy may be required, but that will depend upon how the economy and inflation evolve.”
• Cash ACGBs are 2bp cheaper after the speech’s release to be 1-3bp cheaper on the day. The AU-US 10-year yield differential is 4bp higher at +15bp.
• Swap rates are flat to 2bp higher on the day.
• RBA dated OIS pricing is 1-2bp firmer across meeting after the speech release.