Cheaper, Near Weakest Levels, Narrow Ranges

ACGBs (YM -3.0 & XM -4.5) are cheaper and at/or near Sydney session lows. With the domestic calendar empty today, the local market has drifted cheaper with US tsys in today’s Asia-Pac session. Cash US tsys are dealing ~2bps cheaper compared to the NY close.

• Cash ACGBs are 3-4bps cheaper, with the AU-US 10-year yield differential 2bps higher at -7bps. At -7bps, the 10-year yield differential currently sits in the bottom half of the range of +/-30bps which has been observed since November 2022.
• However, a simple regression of the AU-US cash 10-year yield differential against the AU-US 1Y3M swap spread over the current tightening cycle indicates that the 10-year yield differential is currently 13bps too low versus its fair value (i.e., -7bps versus +6bps).
• Swap rates are 3-5bps higher, with EFPs little changed.
• The bills strip has bear-steepened, with pricing -1 to -4.
• RBA-dated OIS pricing is flat to 3bps firmer across meetings. A cumulative 36bps of easing is priced by year-end.
• Next week, the local calendar is empty on Monday, ahead of the RBA Minutes of the Feb. Policy Meeting on Tuesday.
• Next Wednesday, the AOFM plans to sell A$800mn of 3.75% Apr-37 bond.