Labour Market & Offshore Matters Apply Pressure

The combination of a firmer than expected domestic labour market data, trans-Tasman impetus from a blockbuster NZ GDP release and payside swap flow-derived pressure weighed on ACGBs during the post-FOMC Sydney session, leaving YM -7.0 & XM -9.2 at the close, below their respective overnight session bases. Cash ACGBs were 7-10bp cheaper across the curve, with bear steepening in play.

• There was some widening of the AU/U.S. 10-Year yield spread, which moved back towards parity, closing around the -5bp mark.
• Bills finished 8-14bp cheaper on the day, with the back end of the whites and front end of the reds underperforming.
• This came as market pricing re: RBA tightening shifted higher, with RBA dated OIS now pricing ~19bp of tightening for the Feb ’23 meeting, alongside a terminal cash rate of just under 3.80%.
• EFPs were wider against this backdrop.
• Note that we saw a moderation in the monthly consumer inflation expectations print, which pared back to 5.2% from 6.0% (over a 1-Year horizon).
• Flash S&P Global PMI data headlines the local docket on Friday.