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Sharply Cheaper After CPI Beat

AUSSIE BONDS

ACGBs (YM -10.0 & XM -9.0) are sharply cheaper after a higher-than-expected CPI Monthly print. May CPI printed +4.0% versus +3.8% est. and +3.6% prior.

  • (ABS) "The most significant contributors to the annual rise to May were Housing (+5.2 per cent), Food and non-alcoholic beverages (+3.3 per cent), Transport (+4.9 per cent), and Alcohol and tobacco (+6.7 per cent).
  • “Housing rose 5.2 per cent in the 12 months to May, up from 4.9 per cent in April. Rents increased 7.4 per cent for the year, reflecting a tight rental market across the country. The annual rise in new dwelling prices remained steady at 4.9 per cent with builders passing on higher costs for labour and materials.”
  • "Annual trimmed mean inflation was 4.4% in May, up from 4.1% in April."
  • Cash ACGBs are 8-11bps cheaper after the data, with the AU-US 10-year yield differential at +3bps. This is the first time the differential has been above flat since early February.
  • Swap rates are 9-12bps higher.
  • The bills strip has bear-steepened dramatically after the data, with pricing -9 to -13.
  • RBA-dated OIS pricing is 6-13bps firmer across meetings after the data, with 2025 meetings leading. A cumulative 9bps of easing is priced by year-end from an expected terminal rate of 4.43%. Terminal rate expectations were 4.37% before the data.
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