Cheaper With US Tsys Ahead Of RBA Policy Decision

ACGBs (YM -4.0 & XM -6.0) are cheaper after US tsys extended the post-payrolls sell-off on Monday following Fed Chair Powell’s interview on 60 Minutes on Sunday evening. Powell clarified that a rate cut was not imminent and that expectations for as many as six cuts through 2024 were too high.

• US tsys extended weakness after stronger-than-expected ISM Services across all items, especially prices.
• The US tsy 2-year yield finished 12bps higher to 4.48%, while the 10-year rose 15bps on the day.
• Cash ACGBs are 4-7bps cheaper, with the AU-US 10-year yield differential 2bps tighter at flat.
• Swap rates are 4-7bps higher, with the 2s10s curve steeper.
• The bills strip has bear-steepened, with pricing flat to -6.
• Today, the local calendar sees 4Q Retail Sales Ex Inflation, ahead of the RBA Policy Decision. Bloomberg consensus is unanimous in expecting a no-change decision.
• RBA-dated OIS pricing is 2-4bps firmer across meetings beyond June. The market indicates a 0% likelihood of a 25bp hike or cut. A cumulative 47bps of easing is priced by year-end.
• Terminal rate expectations have sat around the prevailing effective cash rate of 4.32% since early December. To provide context, the market had factored in nearly 20bps of additional tightening leading up to the October CPI Monthly release in late November.
• See MNI RBA Preview here.