Flatter, Collateral Scarcity In The Belly Continues To Be Eyed

The overnight bid & bull flattening has extended in early Sydney trade, leaving YM +4.0 and XM +11.5 at typing, with the impact from a heightened sense of global alert re: Omicron supporting the space, despite questions re: the mortality threat that the new COVID variant ultimately poses.

• It is worth noting that the RBA’s SLF data reveals that ~A$3.2bn worth of ACGBs are currently lent out via the facility. This is concentrated in the belly of the curve, with the borrowing covering ACGB Apr-24, Nov-24, Apr-25 & Nov-25. Note that ACGB Nov-24 accounts for just under A$1.6bn of the borrowing, while ACGB Apr-25 accounts for just under A$900mn. ACGB Apr-24, the bond previously covered by the RBA’s discontinued YCT scheme, accounted for A$635mn of the borrowing. The concentrated nature of the borrowing points to a degree of collateral scarcity when it comes to this area of the curve. This will be one of the factors supporting EFPs & swap spreads in this zone of the curve. Desks note this is the 7^th day since mid-November that has seen ACGB borrowing via the SLF top the A$3.0bn mark.
• Trade and housing finance data, as well as the latest round of scheduled ACGB purchases from the RBA, headline the domestic docket on Thursday.