Perfect Storm Results In More Cheapening

A perfect storm weighed on the ACGB space during Wednesday’s Sydney session, with momentum, continued hawkish re-pricing of the wider market’s RBA expectations, a swift post-RBA move higher in BBSW fixings and trans-Tasman impetus from the firmer than expected wage data in the latest NZ labour market report all applying pressure at different points in the day.

• Some focus was given to newswire headlines re-running sell-side RBA rate calls that were published yesterday, with Westpac’s Bill Evans now looking for a 40bp hike in June, while Goldman Sachs look for back-to-back 50bp rate hikes over the next two meetings and a cash rate of 2.60% by year-end.
• BBG’s WIRP function points to the IB strip pricing in a cumulative ~265bp of tightening across the 7 scheduled meetings in the remainder of the calendar year, which would take the cash rate to 3.00%.
• This dynamic allowed YM & XM to tag fresh cycle lows, although the early bear flattening impulse on the YM/XM curve has receded, with YM -9.0 & XM -10.0. The very front end of the cash ACGB curve provided the weakest point, further out, super longs have cheapened more than the bely.
• Local data was firmer than expected, with retail sales moving to a record outright level and housing finance data providing comfortable beats vs. wider expectations (moving higher across all 3 major metrics vs. expectations for a dip across the 3).
• The IR strip runs 8-19 ticks softer through the reds, with IRU2 providing the weakest point, aided by the aforementioned BBSW fixing dynamics.