AUSSIE BONDS: Richer After RBA Softens Guidance

ACGBs (YM +7.2 & XM +4.6) gap 6-8bps stronger after the RBA decision and statement. 

• The RBA Board held the cash rate at 4.35% amid signs of easing inflationary pressures. Inflation remains above target, with underlying inflation at 3.5%, and is not expected to sustainably reach the 2.5% target midpoint until 2026.
• Economic growth is weak, with output rising just 0.8% over the past year, the slowest pace since the early 1990s (excluding COVID-19). Labour market conditions remain tight but are gradually easing, while wage growth has slowed more than anticipated.
• The Board highlighted uncertainties in domestic and global outlooks and reiterated its commitment to bringing inflation back to target while monitoring economic and market trends.
• Overall, the guidance has softened with the Board “gaining” some confidence inflation will return to target.
• Cash ACGBs are 5-8bps richer on the day after the decision versus 4-5bps cheaper this morning. The AU-US 10-year yield differential at -4bps from +5bps this morning.
• Swap rates are 5-8bps lower, 6-9bps lower than pre-RBA levels.
• The bills strip has shunted richer, with pricing +1 to +9 after the decision.
• RBA-dated OIS pricing is 2-10bps softer across 2025 meetings, with later  meetings leading. A 25bps rate cut is now fully priced by April versus May pre-RBA.