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BUND TECHS

(U2) Bullish Outlook

JGBS

40-Year Supply Goes Very Well

JGBS AUCTION

Japanese MOF sells Y699.9bn 40-Year JGBs:

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Plenty Of RBA Speak Inbound

AUSSIE BONDS

The impetus from the wider core global FI space allowed Aussie bonds to cheapen modestly during overnight dealing, although the contracts managed to pull away from worst levels late in overnight trade. That leaves YM -1.5 and XM -1.5 in early Sydney dealing.

  • The first round of today’s trifecta of RBA speak was the review of the Bank’s yield targeting mechanism. While the Bank once again reiterated the early success of the mechanism it did concede that it suffered some reputational damage as a result of the demise of the monetary tool. The Bank concluded by noting that “now that the Board has more experience with bond purchase programs, it is likely that, in the future, bond purchases would be preferred to a bond yield target. While a bond purchase program may not be as effective in achieving a specific risk-free yield, bond purchases put downward pressure on yields and the exchange rate. Importantly, such a program provides greater flexibility on exit and thus help avoids some of the exit issues associated with the yield target. This flexibility is not without costs, though, including the central bank incurring greater financial risk because of the larger bond purchases and the possibility of significant effects on market functioning as bond holdings increase. The Bank will also undertake a review of its experience with the bond purchase program later in 2022.”
  • Looking ahead, RBA Governor Lowe is set to speak on inflation and monetary policy at 10:00 Sydney/01:00 London, while the minutes of the Bank’s June meeting will be released at 11:30 Sydney/02:30 London. A quick reminder that the Governor has stressed that the RBA will do what is required to bring inflation back to target, suggesting that the idea of the cash rate hitting 2.50% at some point is a reasonable assumption, while also warning that inflation could hit 7% by the end of ’22.
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The impetus from the wider core global FI space allowed Aussie bonds to cheapen modestly during overnight dealing, although the contracts managed to pull away from worst levels late in overnight trade. That leaves YM -1.5 and XM -1.5 in early Sydney dealing.

  • The first round of today’s trifecta of RBA speak was the review of the Bank’s yield targeting mechanism. While the Bank once again reiterated the early success of the mechanism it did concede that it suffered some reputational damage as a result of the demise of the monetary tool. The Bank concluded by noting that “now that the Board has more experience with bond purchase programs, it is likely that, in the future, bond purchases would be preferred to a bond yield target. While a bond purchase program may not be as effective in achieving a specific risk-free yield, bond purchases put downward pressure on yields and the exchange rate. Importantly, such a program provides greater flexibility on exit and thus help avoids some of the exit issues associated with the yield target. This flexibility is not without costs, though, including the central bank incurring greater financial risk because of the larger bond purchases and the possibility of significant effects on market functioning as bond holdings increase. The Bank will also undertake a review of its experience with the bond purchase program later in 2022.”
  • Looking ahead, RBA Governor Lowe is set to speak on inflation and monetary policy at 10:00 Sydney/01:00 London, while the minutes of the Bank’s June meeting will be released at 11:30 Sydney/02:30 London. A quick reminder that the Governor has stressed that the RBA will do what is required to bring inflation back to target, suggesting that the idea of the cash rate hitting 2.50% at some point is a reasonable assumption, while also warning that inflation could hit 7% by the end of ’22.