Cross-Market Flows Aid Cheapening Impulse

Aussie bonds struggled to catch a bid during Monday’s Sydney session.

• At one point we saw an extension of the steepening/weakness observed earlier in the session, with a lack of headline drivers evident. Cash ACGBs were 4.5-9.5bp cheaper across the curve at the close, while YM settled -5.0 with XM -8.0, after weakness in the latter extended through its overnight session base, pushing a pure flow element to the fore.
• Building on the flow-centric nature of the move is the fact that the AU/U.S. 10-Year yield spread is showing above 0bp, as Aussie 10s widen vs. their U.S. counterpart (that spread hasn’t closed in positive territory since mid-October). This triggered RBC into issuing a tightener recommendation in that spread. ACGBs also notably underperformed vs. NZGBs.
• Note that YM pulled lower into the close, in what looked like a liquidation of longs at first glance, although the widening of 3-Year EFP alongside the move suggested swap payside flows were also evident.
• Bills finished +2 to -4, twist steepening, with little movement noted in RBA dated OIS vs. Friday’s late Sydney levels.
• There wasn’t much in the way of meaningful idiosyncratic news flow, with headlines dominated by PM Albanese noting that Foreign Minister Wong will visit China on Tuesday.
• The minutes covering the most recent RBA monetary policy meeting headline the local docket on Tuesday.