Richer, Still Digesting RBA Statement, Spillover From NZGBs

ACGBs (YM +3.0 & XM +3.0) are slightly richer despite a solid lead-in from US tsys, which finished with solid gains after two heavy days of selling. US tsys finished 4-7bps richer across benchmarks, with a steeper curve. The local market’s muted reaction to overnight developments may reflect the continuing digestion of yesterday’s less dovish RBA statement and possible spillover from the sharp sell-off in NZGBs following stronger-than-expected Q4 Employment and wages data.

• There was a muted initial reaction to Fed Mester economic outlook comments, which were largely in line with Chairman Powell's comments. However, Mester later reiterated the likelihood of three rate cuts in 2024. Fed President Kashkari also sounded more placative of late.
• Projected Fed rate cut pricing gained slightly by Tuesday's close: March 2024 chance of 25bp rate cut at -20% vs. -17% yesterday May 2024 at a cumulative -20bps at 5.12%, while June 2024 back to -43bp at 4.90%.
• Cash ACGBs are 3bps richer, with the AU-US 10-year yield differential unchanged at 0bp.
• Swap rates are 2-3bps lower.
• The bills strip has slightly bull-flattened, with pricing +1 to 4.
• RBA-dated OIS pricing is 3-7bps firmer across meetings beyond May. A cumulative 42bps of easing is priced by year-end.
• Today, the local calendar sees Foreign Reserves data and the sale of A$800mn of 2.75% Nov-28 bond.