Labour Market Data Adds To Flattening Pressure

The cheapening impetus seen from stronger-than-expected domestic labour market data allowed the Tsy-inspired flattening impetus to extend, with another shunt lower in the unemployment rate outstripping market expectations.

• The space is back from extremes in terms of both cheaps and session flats as we work towards the Sydney close. Cash ACGBs run 2-15bp cheaper across the curve, with 3s sitting ~14.5bp cheaper at typing, after printing as much as 19bp cheaper earlier in the day. YM and XM are -14.0 and -4.5, respectively after the former breached its overnight lows in the wake of the labour market report. EFPs have continued their recent tightening, with the 3-/10-Year box flattening today.
• Bills run flat to 34 ticks cheaper through the reds, bear flattening.
• STIR markets now price in ~64bp of tightening come the end of the RBA’s August meeting, with Goldman Sachs and Nomura being the first two sell-side names to call for such a move. The continued tightening of the labour market, coupled with the frontloading of Fed hike expectations have been in the driving seat today, with the labour market report threatening to force a further frontloading of RBA tightening, in addition to opening the door towards a higher terminal rate.
• Friday will see the release of the AOFM’s weekly issuance slate, as well as a A$700mn of ACGB Apr-27 auction.