Holding Sharply Cheaper After Higher-Than-Expected CPI Data

ACGBs (YM -18.0 & XM -12.0) are sharply cheaper after a higher-than-expected CPI Monthly print.

• May CPI printed +4.0% versus +3.8% est. and +3.6% prior. This was the firmest y/y print since Nov last year. While base effects played a role in May’s reading, the underlying inflation trend isn’t favourable for a near-term dovish RBA policy pivot. Annual trimmed mean inflation was 4.4% in May, up from 4.1% in April.
• In terms of detail, the ABS noted: "The most significant contributors to the annual rise to May were Housing (+5.2%), Food and non-alcoholic beverages (+3.3%), Transport (+4.9%), and Alcohol and tobacco (+6.7%)."
• Cash ACGBs are 12-18bps cheaper on the day, with the AU-US 10-year yield differential at +6bps. This is the first time the differential has been positive since early February.
• Swap rates are 10-17bps higher on the day, with the 3s10s curve flatter.
• The bills strip has shunted cheaper, with pricing -13 to -22.
• RBA-dated OIS pricing is 7-21bps firmer across meetings after the data, with 2025 meetings leading. A cumulative 5bps of easing is priced by year-end from an expected terminal rate of 4.48%. Terminal rate expectations were 4.37% before the data.
• Tomorrow, the local calendar will see Consumer Inflation Expectations and Job Vacancies data, and a speech from RBA Hauser aftermarket.