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Holding Sharply Cheaper After Q1 CPI Surprises On The Upside, ANZAC Holiday Tomorrow

AUSSIE BONDS

ACGBs (YM -18.0 & XM -13.0) are sharply cheaper after Q1 CPI data surprised on the upside across all measures. Headline printed +1.0 q/q and +3.5% y/y versus expectations of +0.8% and +3.4% respectively. Trimmed Mean CPI printed +1.0% q/q and +4.0% y/y versus expectations of +0.8% and +3.8% respectively.

  • Inflation is edging closer to the RBA's target range, but the robust quarterly increases and the uptick observed in March, if sustained, pose a threat to this progress. The likelihood of rate cuts being considered in 2024 appears remote, if not off the table.
  • To meet the RBA’s Q2 forecasts a significant but not unlikely moderation is required in Q2 to around 0.5-0.6% q/q.
  • Cash ACGBs are 9-13bps cheaper after the data and 13-18bps cheaper on the day. The AU-US 10-year yield differential is 11bps higher at -22bps.
  • Swap rates are 8-13bps higher after the data and 12-18bps higher on the day. The 3s10s curve is 6bps flatter versus yesterday’s close.
  • The bills strip has sharply bear-steepened, with pricing -9 to -20.
  • RBA-dated OIS pricing is 9-14bps firmer for meetings beyond June after the data. A cumulative 8bps of easing is priced by year-end versus 17bps before the data.
  • The Australian and NZ markets are closed tomorrow for the ANZAC Day holiday.
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