Early Weakness Extends On BoJ Policy Move

Aussie bonds were under pressure for the majority of the Sydney session, initially extending weakness on cross-market type flows vs. NZ & U.S. equivalents, before the surprise BoJ policy tweak that we have outlined elsewhere applied pressure to the wider core global FI sphere, allowing the early cheapening & steepening to extend.

• That left YM -11.0 & XM -20.0 at the bell, with a fairly parallel shift observed in the 10+-Year of the cash curve.
• Weakness in bonds drove the move as EFPs narrowed post-BoJ.
• Bills finished flat to 10bp cheaper through the reds, bear steepening. Meanwhile, RBA dated OIS pricing was incrementally higher, albeit ultimately little changed, showing 19bp of tightening for the Feb ’23 decision, alongside a terminal cash rate of ~3.78%.
• The minutes from the latest RBA decision showed that everything from no change to a 50bp hike in the cash rate was discussed earlier this month (ultimately a third consecutive 25bp hike was enacted). The fact that the Bank openly discussed a pause in tightening for the first time this cycle gave some watchers more conviction in their call that we are nearing the end of the current tightening cycle. Still, this had little in the way of meaningful impact on price action, with the cheapening factors dominating.
• Looking ahead, Wednesday’s local docket is headlined by the monthly Westpac leading index print.