Richer But Off Bests, As Core CPI Measures See Smaller Declines

ACGBs sit stronger (YM +4.0 & XM +4.0) but well off session bests seen immediately following the release of lower-than-expected CPI monthly data for May. A closer inspection of the data revealed much smaller declines for the CPI ex-volatile items & holiday travel and the trimmed mean series. This assisted the move from market highs.

• Cash ACGBs are 1bp richer after the data to be 4-5bp richer on the day. The AU-US 10-year yield differential is -7bp on the day at +13bp.
• Swap rates are 6bp richer on the day with EFPs tighter.
• Bills are richer across the strip with pricing +4 to +7.
• RBA-dated OIS pricing is 4-6bp softer for meetings beyond August after the CPI data. The market now attaches a 31% chance of a 25bp hike in July.
• Tomorrow's local calendar sees the release of Retail Sales for May, which is anticipated to provide additional confirmation of the ongoing consumer slowdown.
• Australia’s first budget surplus in 15 years will be larger than the A$4.2 billion seen just last month, Treasurer Jim Chalmers said, as elevated commodity prices and a tight labour market bolster revenue. (See link)
• Australia is bound for a recession after rapid interest-rate increases, so its sovereign bonds offer a “fantastic opportunity” with many investors underpricing that risk, according to PIMCO. (See link)