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Lower Overnight

AUSSIE BONDS

The wider cheapening impetus observed in core global FI markets (driven by an uptick in ECB tightening premium and a rally in equities) allowed Aussie bond futures to extend on their Sydney weakness during the overnight session. That leaves YM -6.0 and XM -4.5 shortly after the Sydney re-open, pretty much in line with late overnight session levels. Bills run -2 to -10 through the reds.

  • Looking ahead Westpac leading index data, A$800mn of ACGB May-32 supply and an address from RBA Governor Lowe on “Inflation, Productivity and the Future of Money” headline domestic matters on Wednesday.
  • A quick reminder that Lowe’s address comes after Tuesday saw the release of the minutes covering the most recent RBA decision note “that the current level of the cash rate is well below the lower range of estimates for the nominal neutral rate,” while we also learnt that the Bank discussed a 25 or 50bp hike in July (going with the latter), and nothing more sizable. Lowe has previously flagged his preference for 25-50bp steps, but any fresh input on this matter will be eyed when it comes to today’s address. Elsewhere, Tuesday saw RBA Deputy Governor Bullock flag a rough estimate for the neutral real cash rate of 0.5-1.5% (based on RBA research conducted in ’17), which we note would put the lower boundary for the nominal cash rate at 3.00%, assuming inflation returns to around the midpoint of the Bank’s 2.50% target. Bullock also noted that RBA modelling suggests that households can weather a 300bp hike in mortgage rates. CBA note that “that’s not the same question as “Can the overall Australian economy withstand a 300bp rate rise without a widespread change in consumer behaviour that alters, among other things, the spending outlook?””
  • Note that the Treasurer has released the principles that will govern the review of the RBA, which is set to be delivered by Mar ’23 (see earlier bullet for more details).
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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