Meandering Pre-U.S. CPI Session

Aussie bonds wound through the pre-U.S. CPI Sydney session after an early extension lower on the back of overnight weakness in futures, which was tied to U.S. Tsys cheapening on Monday.

• A move away from lows in Tsys and local data likely helped the space find a base, with the monthly NAB business & Westpac consumer confidence data giving further credence to the RBA’s assessment re: the narrow path that the economy is on at present. Some fresh pressure was seen into the close, as YM registered a fresh session low.
• YM finished -4.8, with XM -1.7, as the wider cash ACGB curve saw a similar degree of bear flattening.
• EFPs were narrower on the day, suggesting the cheapening move was bond, not swap, driven.
• Quarterly bond futures roll activity continued to support volumes ahead of Thursday’s Z2 contract expiry, with the YM roll biased to selling and XM roll fairly evenly split in terms of direction of trade.
• Bills were flat to -3 through the reds, with RBA dated OIS little changed on the day.
• Looking ahead, U.S. CPI data will shape matters overnight, with RBA Governor Lowe’s latest address due early Wednesday morning local time.