RBA Only Delivers 25bp Hike, Triggering Repricing Of Terminal Rate

A surprise 25bp hike from the RBA (~45bp of tightening was priced into dated OIS covering today’s RBA meeting) put an immediate bid into the Aussie fixed income space, with terminal rate pricing reassessed, falling back to ~3.60% vs. the ~4.10% level seen late Friday/early today (some of that was attributable to spill over from the moves in market pricing re: BoE hikes on Monday).

• 3-Year ACGB yields plummeted to near 3.00% vs. the ~3.45% see ahead of the decision, before rebounding to trade around the 3.25% mark into the close. Cash ACGBs run 13-35bp richer across the curve, with 3s leading as the curve bull steepens. YM is +26.0 & XM is +23.
• Bills have surged on the repricing of expectations surrounding the RBA’s terminal rate, running 37-62bp firmer on the day through the reds into the close, off of best levels, with IRH3 & M3 outperforming.
• The Bank noted that it expects to increase interest rates further in the period ahead (previously it flagged in “the months ahead”), while it highlighted the speed of the previously deployed tightening and the deteriorating global conditions in its post meeting statement. Household consumption remains key, and it seems that the lagged impact of monetary policy was integral to the RBA’s thought process when it came to slowing rates, which is understandable given the level of debt in the Australian economy.
• The Bank also dropped the reference to monetary policy not being on a pre-set path.