NAB: Local & U.S. Supply May Maintain Steepening Pressure

NAB note that "this week's supply schedule for the AOFM and U.S. Treasury may well maintain some steepening pressure on yield curves to start the week - the AOFM is issuing $1.5bn into the 9-/11-Year part of the curve while the U.S. Treasury will issue a total of USD68bn into the 10-Year and 30-Year tenors (while also issuing USD58bn into the 3-Year tenor). One of our core views for 2021 is steeper yield curves. The steepening recorded year-to-date has been swift with the Australian 3-/10-Year bond curve having steepened 22bps while the U.S. 3-/10-Year bond curve is 23bps steeper. If we ignore the spike in the Aussie curve back in mid-March, the Australian 3-/10-Year curve is at its steepest level since 2014 while the U.S. curve is the steepest since 2016. Curve steepening is occurring along with rising inflation expectations as the market looks ahead to a recovery (and potentially higher inflation). This week's US CPI report could see some consolidation in the curve if there is disappointment in the print but ultimately, we expect further curve steepening in yield curves and higher BEIs (at least in Australia) as the year progresses."