Little Changed After Q1 GDP Miss, RBA Lowe Speech Weighs On Market

ACGBs are little changed (YM -4.0 & XM -2.0) after Q1 GDP slightly undershoots expectations, printing +0.2 q/q and +2.3y/y (0.3% & 2.4% est.). Nominal GDP grew by 2.1 per cent in Q1, and 9.2 per cent through the year. Compensation of employees increased by 2.4 per cent, following a 2.0 per cent rise in Q4.

• The GDP miss comes after RBA Governor Lowe's speech this morning reiterated the hawkish message embedded in yesterday’s surprise 25bp rate hike. He commented that the decision to increase minimum award wages by 5.75% was only one factor in the Board’s June decision. He added that increases should be in line with 2.5% plus productivity growth and so the latter is key in making larger pay rises sustainable and not inflationary. The other factors considered in June were overseas developments, domestic inflation, house prices, AUD, and Federal and state wage policies.
• Cash ACGBs are 2-3bp cheaper on the day. The AU-US 10-year yield differential is 4bp higher at +15bp.
• Swap rates are 1-4bp higher on the day.
• The bills strip is lower with pricing -2 to -7, late whites leading.
• RBA dated OIS pricing is 1-5bp firmer across meetings after the data with December leading.