Curve Twist Steepens, Bonds Firm After RBA’s 25bp Hike

Aussie bonds firmed in the wake of the latest RBA decision, as the Bank deployed the widely expected 25bp rate hike, after stepping down to that increment at last month’s meeting. This came after some overnight/early Sydney cheapening.

• The fact that 32bp of tightening was priced into OIS for today’s decision, coupled with the Bank’s reference to the “material” tightening now deployed in the current cycle and a more overt reference to the lagged impact of monetary policy, allowed Aussie bonds to firm post-decision.
• The major cash ACGB benchmarks were 4bp richer to 4bp cheaper at the close, twist steepening, with a pivot around 7s. YM was +4.0 & XM was -1.0. EFPs were wider again today, with the 3-/10-Year box flattening. Bills were 9bp richer to 5bp cheaper through the reds, as the strip twist steepened, pivoting around the front of the reds. Terminal cash rate pricing eased to ~3.95%.
• Focus now moves to the impending address from RBA Governor Lowe at the Bank’s Board dinner with the business community. Participants will be on the lookout for commentary around the scenarios that were discussed at today’s decision (with anywhere between no move in the cash rate to a 50bp rate hike having the potential to feature).