Richer, Narrow Ranges, AU-US 10Y Differential Too Negative

ACGBs (YM +3.0 & XM +7.0) sit richer after dealing in relatively narrow ranges in the Sydney session. The local calendar was light today, with the previously outlined October Consumer Inflation Expectations as the sole release.

• Hence, local participants have likely eyed US tsy dealings in the Asia-Pac session for guidance ahead of the release of US CPI later today. Cash US tsys sit ~1bp cheaper across the major benchmarks. Bloomberg consensus is expecting core CPI to print +0.3% m/m (4.1% y/y) in September versus +0.3% and 4.3% prior.
• Cash ACGBs are 3-7bps, with the AU-US 10-year yield differential 1bp higher at -21bps.
• A regression of the AU-US cash 10-year yield differential and the AU-US 1Y3M swap differential over the current tightening cycle indicates that the 10-year yield differential is currently 27bps too negative versus its fair value (i.e., -21bp versus +6bp). (See link)
• Swap rates are 2-7bps lower, with the 3s10s curve flatter and EFPs little changed.
• Bills strip pricing is mixed, -1 to +3.
• RBA-dated OIS pricing is flat to 3bps softer across meetings. Terminal rate expectations sit at 4.19%.
• Tomorrow, the local calendar is empty.