Goldman: Mark To Market On Aussie Rates

Goldman Sachs note that “Aussie yields have moved sharply higher across the curve, including at the front end, despite underlying data still some distance away from meeting the RBA’s liftoff criteria. The repricing has occurred even as the central bank has reiterated a more patient stance; most recently, Governor Lowe reaffirmed in testimony that while 2022 liftoff was “plausible,” more evidence was needed on inflation and “another couple of CPIs would be good to see,” implying rate hikes were unlikely until the release of Q222 CPI data. Nonetheless, expectations for 2022 rate hikes still deepened on net this week, with the front-end now discounting 117bp of hikes this year and liftoff fully priced around mid-year. While our economists forecast a less front-loaded path of tightening than that is currently priced, we think it will be hard to deter pricing materially near-term. Outside of the front end, the long end is also driven by developments in global bond markets. AUD 10-Year yields have displayed high co-movement with these rates, and there appears to be considerable spillover from the selloff in US and European bond markets. As a result, we made modest upward revisions to our forecasts here (2.35% at the end of this year), but even these revised projections imply more measured increases than that implied by market forwards.”