Heavy As Economists Turn Hawkish & Minimum Wage Outcome Announced

ACGBS are weaker (YM -5.0 & XM -2.0) and at Sydney session lows despite home loan data surprising on the downside, printing -2.9% m/m in April versus expectations of +2.0%. While slightly weaker US tsys in Asia-Pac trade are likely weighing on the local market, the softness in ACGBs appears likely linked to the minimum wage outcome announced today.

• The Australian Fair Work Commission has announced that the Australian minimum wage will be increased by 5.75%, effective from July 1. Local unions had wanted a 7% increase. Note RBA forecasts have the Wage price index peaking at 4.00% in Q4 of this year. So, whilst the headline was lower than the 7%, which had been discussed, it still may create concerns of a higher wages peak than the RBA is projecting and force further RBA action. (link)
• Cash ACGBs are 3-5bp cheaper with the 3/10 curve flatter and the AU-US 10-year yield differential +6bp at +2bp.
• Swap rates are 2-3bp higher with EFPs little changed.
• The bills strip bear flattens with pricing is -8 to -3.
• Also likely weighing on the local market is the fact that a number of sell-side economists have turned more hawkish in terms of RBA outlook, see here and here.
• RBA dated OIS is 3-6bp firmer across meetings with 57% chance of a 25bp hike in June priced. It was a 40% chance at the open of trade today.