Extends Yesterday’s Post-CPI Rally After Fed Chair Powell’s Dovish Tilt

ACGBs (YM +3.0 & XM +4.0) are richer and sit mid-range after extending yesterday’s post-CPI rally in response to Fed Chair Powell’s slight dovish tilt at the FOMC presser.

• Cash ACGBs sit 17-21bps richer compared to pre-CPI levels, with a steeper 3/10 curve.
• The AU-US 10-year yield differential is 4bps wider at +1bps after yesterday’s 11bp narrowing. At +1bp, the differential sits in the middle of the +/- 30bp range it has traded in over the past 18 months.
• (AFR) Almost all the economists calling for an interest rate rise as soon as next week now concede the Reserve Bank of Australia’s next move will be a cut after new data showed underlying inflation eased last quarter. (See link)
• Swap rates are 4-5bps lower, with the 3s10s curve flatter.
• The bills strip has bull-flattened, with pricing +1 to +5.
• RBA-dated OIS pricing is flat to 4bps softer today and 7-27bps softer than pre-CPI levels across meetings, with 2025 meetings leading.
• Terminal rate expectations have tumbled to 4.34% (versus the current effective rate of 4.32%) from 4.42% before yesterday’s CPI data.
• Easing expectations have returned with the expected year-end official rate falling to 4.18%, its lowest level since the mid-June RBA meeting.
• Tomorrow, the local calendar is empty apart from the AOFM’s planned sale of A$600mn of 3.75% 21 May 2034 bond.