Holding Firmer, FOI Documents Show RBA Considered Impact of 4.8% Rates

ACGBs are holding firmer (YM +5.0 & XM +4.5) but off session bests despite a slight firming in US tsys in early Asia-Pac trade. Cash ACGBs are 4-5bp richer but with the AU/US 10-year yield differential +4bp at -2bp.

• Lower China bond yields after inflation misses didn’t appear to have material impact.
• Documents obtained through an FOI request from Bloomberg have revealed alternative scenarios discussed in the minutes of a meeting. One scenario projected a cash rate increase of 25bp at each meeting until it reached 4.8%, while another had rates rising by 50bp until it reached 4.8%. The third scenario suggested holding rates steady at 3.35%, the February level. All three options were expected to achieve the target inflation band by mid-2025, but the first two would have achieved it by late 2024. Even with rates at 4.8%, an unemployment recession was avoided. The market’s reaction to the documents has been minimal.
• Swap rates are 5-6bp lower with EFPs little changed.
• The bills strip twist flattens with pricing -2 to +11.
• RBA-dated OIS pricing is 1-5bp softer for meetings beyond October with terminal rate expectations at 3.91% (August).