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AUSSIE BONDS: Cheaper As US Tsys Look Past Cooler CPI To Trade War Risks

AUSSIE BONDS
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ACGBs (YM -4.0 & XM -2.5) are weaker after US tsys looked past cooler inflation to the prospect of an escalating global trade war. 

  • After initially plunging when the data was released, US yields quickly rebounded to new session highs, higher levels of the day. The 2-year yield was up by 4bps to 3.99%, while the 10-year yield rose to 4.31%, up 3bps.
  • Headline CPI inflation data came out lower than expected (0.2% vs. 0.3% est, 0.5% prior). However, focus quickly turned to Core & Supercore CPI - while lower than expected - remained hot: Core CPI surprisingly eased to 3.12% Y/Y in February (cons 3.2) from what had been a surprisingly strong 3.26% in January.
  • Supercore (core services ex-housing) inflation pulled back more than expected on the month, although as noted above, it was dragged lower by softer-than-expected airfares and vehicle insurance (for which PPI and not CPI feed into PCE).
  • Cash ACGBs are2-4bps cheaper with the AU-US 10-year yield differential at +15bps.
  • Swap rates are 3-4bps higher.
  • The bills strip has bear-steepened, with pricing -1 to -5.
  • Today, the local calendar will see Melbourne Institute inflation expectations for March. The previous month they jumped 0.6pp to 4.6%, the highest since November 2023.
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ACGBs (YM -4.0 & XM -2.5) are weaker after US tsys looked past cooler inflation to the prospect of an escalating global trade war. 

  • After initially plunging when the data was released, US yields quickly rebounded to new session highs, higher levels of the day. The 2-year yield was up by 4bps to 3.99%, while the 10-year yield rose to 4.31%, up 3bps.
  • Headline CPI inflation data came out lower than expected (0.2% vs. 0.3% est, 0.5% prior). However, focus quickly turned to Core & Supercore CPI - while lower than expected - remained hot: Core CPI surprisingly eased to 3.12% Y/Y in February (cons 3.2) from what had been a surprisingly strong 3.26% in January.
  • Supercore (core services ex-housing) inflation pulled back more than expected on the month, although as noted above, it was dragged lower by softer-than-expected airfares and vehicle insurance (for which PPI and not CPI feed into PCE).
  • Cash ACGBs are2-4bps cheaper with the AU-US 10-year yield differential at +15bps.
  • Swap rates are 3-4bps higher.
  • The bills strip has bear-steepened, with pricing -1 to -5.
  • Today, the local calendar will see Melbourne Institute inflation expectations for March. The previous month they jumped 0.6pp to 4.6%, the highest since November 2023.