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Holding Pattern Ahead Of FOMC Policy Decision

AUSSIE BONDS

ACGBs (YM -4.0 & XM -5.0) are holding weaker after dealing in narrow ranges in today’s Sydney session. With the FOMC Policy Decision due later today, local participants will need some prodding to move from the sidelines in today’s session. Cash US tsys are dealing 1-2bps richer in today’s Asia-Pac session.

  • Powell is expected to tilt more cautious on the inflation outlook than in previous appearances, with potential flashpoints for markets including whether he acknowledges that 3 cuts are less likely to be the base case for the FOMC in 2024, and/or whether June is too early for the first cut. (See MNI’s FOMC Preview here)
  • Cash ACGBs are 3-5bps cheaper, with the AU-US 10-year yield differential at -19bps.
  • Swap rates are 2-4bps higher, with the 3s10s curve steeper.
  • The bills strip has bear-steepened, with pricing flat to -5.
  • RBA-dated OIS pricing is 4-6bps firmer for late 2024/early 2025 meetings.
  • (MNI) Australia’s Q1 CPI outturn has eliminated prospects for a 2024 rate cut, according to market pricing, but whether the Reserve Bank of Australia will need to increase rates again to pull inflation back to target without impacting its already generous timeline remains debatable, former RBA staffers tell MNI. (See here ICYMI)
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