RBA Stay On Sidelines, Unleashing Surge In ACGB Yields

All eyes were on ACGB space as the RBA defied market expectations and stayed out of the market, instead of stepping in to enforce their ACGB Apr '24 yield target. The Reserve Bank looked through the surge in their target yield over the last two days, but bought A$1.0bn of ACGB Apr '24 last Friday, which fuelled expectations of another such intervention today. Their preference to remain on the sidelines inspired revisions to sell-side calls ahead of the upcoming monetary policy meeting, slated for this coming Tuesday. ANZ and NAB noted that they expect policymakers to scrap their yield target as soon as next week, while NAB added that they now expect the first cash rate hike in mid-2023 rather than in 2024.

• Expectations for an intervention in defence of the yield target were evident, as short-term yields retreated in early trade. Once got past the typical time of the RBA's bond purchase offer announcements, cash ACGBs got battered. Yields surged and last sit +9.7-19.5bp, the curve generally runs steeper, albeit 2s (ACGB Apr '24) underperform. Worth noting that 10-year yield posted its largest daily gain since Mar '20 as it hit session highs. Swings in Aussie bond futures were driven by the same factors and posted sharp pullbacks on the back of the RBA's silence. YM last -8.5 & XM -17.0, hovering close to session lows. Bills trade unch. to 7 ticks lower through the reds. Local data releases (incl. a beat in monthly retail sales) & ACGB Nov '32 supply were ignored, as was the release of the AOFM's weekly issuance plan.
• JGB futures slid to a session low of 151.27, likely on the back of spillover from ACGB space, but recouped those losses later on. The contract last sits at 151.33, 6 ticks shy of previous settlement. Cash JGB yield curve is marginally flatter, as the super-long end outperforms. Japan's preliminary industrial output & Tokyo CPI both missed forecasts, while unemployment remained steady, as anticipated. Uncertainty was elevated ahead of Japan's general election this Sunday.
• ACGB impetus drove T-Notes in early trade, but the latter contract failed to hold onto gains and faltered later in the session. As this is being typed, T-Notes trade -0-03 at 130-21. Cash Tsy yields recovered and sit marginally higher across the curve. Eurodollars last seen -1.0 to +1.0 tick through the reds. Today's U.S. docket features PCE index, MNI Chicago PMI & final Uni. of Mich. Sentiment, while the Fed are in their blackout period.