Cheaper, Post-WPI Richening Pared

ACGBs (YM -5.0 & XM -6.5) are weaker but in the middle of the Sydney session’s range. ACGBs spiked richer after the Q2 Wage Price Index (WPI) missed forecasts, printing +0.8% q/q versus expectations of +0.9%, but around half of those gains were subsequently reversed.

• The reversal could reflect that Q3 data is the key print with not only minimum wages increasing on July 1 but also other awards (awards didn’t contribute to Q2 rise). We should see if services were able to pass on higher wages in Q3 CPI data on October 25. The July NAB wage cost component rose sharply.
• The August RBA Minutes were released also but are unlikely to have had a major impact given RBA Governor’s Lowe testimony to Parliament on Friday outlined the key issues.
• Cash ACGBs are flat to 1bp richer after the releases to be 5-6bp cheaper on the day. The AU-US 10-year yield differential is 2bp wider at +6bp.
• Swap rates are 5-6bp higher on the day.
• The bills strip shifts from a post-release twist steepening to a bear steepening with pricing flat to -9.
• RBA-dated OIS pricing is flat out to December and 1-4bp firmer for meetings beyond.
• Tomorrow the local calendar sees the Westpac–MI Leading Index.