AUSSIE BONDS: Richer, US Tsys Rally On PPI Details, Empty Local Calendar

ACGBs (YM +5.0 & XM +6.5) are stronger after US tsys rallied strongly on Thursday after details of January's PPI offered some hope for easing price pressures in the Federal Reserve's preferred inflation measure, the PCE Deflator.

• Overall PPI final demand inflation printed at 0.40% M/M sa (cons 0.3) after a heavy upward revision of 0.50% (initial 0.22) in Dec. However, that was partly offset by a downward revised 0.23% (initial 0.38) in Nov.
• US tsys finished near late-session bests on Thursday, 5-10bps richer with a flattening bias, returning to pre-CPI levels from Wednesday despite higher-than-expected PPI data and upward revisions.
• Market sentiment was further supported by the postponement of reciprocal US tariffs to early April.
• Cash ACGBs are5-7bps richer with the AU-US 10-year yield differential at -13bps.
• Swap rates are 4-5bps lower.
• The bills strip has bull-flattened, with pricing +1 to +7.
• RBA-dated OIS pricing is 1-4bps softer across meetings today. A 25bp rate cut is more than fully priced for April (122%), with the probability of a February cut at 85% (based on an effective cash rate of 4.34%).
• The local calendar is empty until the RBA Policy Decision next Tuesday.
• The AOFM plans to sell A$700mn of the 1.50% 21 June 2031 bond today.