RBA No Longer Patient

The RBA’s removal of the reference to patience in its post-meeting guidance paragraph and focus on upside risks to inflation provided a hawkish read when it came to the post-monetary policy meeting statement. Those matters, coupled with the Bank’s expectations for a continued tightening of the labour market and removal of the phrasing surrounding uncertainty when it comes to the Russia-Ukraine conflict have pressured the ACGB space.

• The Bank’s June meeting is now a very live affair (short-end rate markets had suggested that was the case for some time), with the Bank’s mention of data re: inflation and labour costs in the upcoming months meaning that June is a more probable lift off point than May. May’s (pre-Q122 WPI) SoMP seemingly provided the perfect staging post for guidance re: future action as it comes after the release of Q122 CPI data.
• ~25bp of tightening is priced for the Bank’s June meeting, up a touch vs. pre-RBA levels, but within the realms of what we have seen in recent sessions.
• The degree of futures curve flattening hasn’t really altered, although the move is now bearish in nature, not bullish, with all of the post-settlement gains now reversed and more. YM -6.5 & XM -4.5 at typing. EFPs are comfortably wider on the day, with the 3-/10-Year box flattening, while the IR strip runs 8-14 ticks lower through the reds.
• Pre-RBA trade was dominated by (limited) moves in wider core FI markets.