CBA: Government Bonds Outperforming OIS, Swap And Semis

CBA note “there are a lot of spreads moving at present: EFPs, semis and more. However, underlying most of this is that ACGBs are outperforming OIS. All ACGBs have been outperforming OIS, but the 3- and the 10-Year are most relevant here. These bonds outperforming OIS is directly causing the swap to futures widening that is recorded in the EFP widening. That EFP movement is now quite extreme. EFPs aren’t consistent so you don’t necessarily want to be comparing current levels with recent highs (which were before the roll). But this is a real movement of the bonds. Also, as we’ve noted recently, the current position in the quarterly cycle of the EFPs, being only three weeks past the last roll, should still be producing relatively tight EFPs. As the swap rates roll up the curve and the RBA raises rates in coming months, the EFPs will be under further widening pressure. This outperformance by ACGBs is causing a major underperformance by Semis against ACGBs. The widening in Semis is mostly driven by the movements in the ACGB to OIS. The Semis have been relatively stable on other measures, like ASW.”