Cheaper And Steeper

The previously outlined positive risk sentiment observed in wider Asia dealing seemed to be the driving factor behind the pressure on the ACGB space during Sydney trade, overriding the bull flattening seen in overnight dealing.

• Some pointed to the fact that the RBA’s May meeting minutes revealed the discussion of a 40bp rate hike as a driver of the move (the Bank also discussed a 15bp move, in addition to the 25bp hike implemented), although subsequent movements in RBA pricing seemed to be more closely linked with the broader risk-on flows, as opposed to a direct response to the meeting minutes. Note that the IB strip is currently pricing ~36bp of tightening for the June meeting and a year-end cash rate of ~2.75%, with both measures incrementally higher vs. yesterday’s closing levels.
• The RBA meeting minutes also contained discussion re: inflation psychology, with the Bank clearly cognisant of the risks surrounding de-anchored inflation expectations.
• On B/S matters the Bank noted that “in some years' time, after the Bank's balance sheet had reduced further, the Board would need to consider the broader issue of the longer-term optimal size and composition of the balance sheet, including the size of Exchange Settlement balances. In this context, it might consider the use of longer-term bond holdings, although this would be driven by the appropriate operating framework in light of evolving conditions and would not have implications for, or have a bearing on, the stance of monetary policy."
• YM & XM are hovering just above session lows, -5.0 & - 4.5, respectively. Wider cash ACGB trade sees the longer end of the curve lead the way lower, with 30s cheapening by just under 6bp. EFPs are little changed on the day.
• WPI data headlines the local docket on Wednesday, with plenty of discussion evident re: the ability of the print to tip the RBA’s hand when it comes to the level of tightening that it will deploy at the June meeting.