Cheaper, Narrow Ranges Ahead Of FOMC Policy Decision

ACGBs (YM -6.0 & XM -6.5) are holding weaker after dealing in narrow ranges in today’s Sydney session. With the local calendar light and the FOMC Policy Decision due later today, local participants sat on the sidelines.

• Cash US tsys are dealing ~1bp richer in today’s Asia-Pac session after yesterday’s heavy session.
• Analysts generally look for a more hawkish message from the FOMC in May compared with March, in light of strong inflation and economic activity data.
• (AFR) The US and Australian central banks are expected to take a tougher stance on tackling inflation at their upcoming meetings, cementing expectations that interest rates will have to stay high for longer and risking a further sell-off in the market. (See link)
• Cash ACGBs are 5-6bps cheaper, with the AU-US 10-year yield differential at -19bps.
• Today’s May-34 bond auction went smoothly with strong demand metrics, including a jump in the cover ratio to 3.9813x from 3.6437x at the March auction.
• Swap rates are 4-5bps higher, with the 3s10s curve steeper.
• The bills strip has bear-steepened, with pricing -2 to -6.
• RBA-dated OIS pricing is 4-6bps firmer for late 2024/early 2025 meetings.
• Tomorrow, the local calendar will see Building Approvals and Trade Balance data.