Sharply Cheaper As The RBA Surprises With A 25bp Hike

ACGBs are sharply cheaper (YM -9.0 & XM -4.0) after the RBA surprise the market again with a 25bp rate hike to 4.10%. The market had priced a 30% chance of a hike going into the meeting.

• According to the statement, the decision was made to address high inflation, which, although it has peaked, remains at 7%, necessitating further measures to ensure its return to the target range. Recent data indicates increased upside risks to the inflation outlook, leading to the Board's response. Services price inflation remains high, while unit labour costs are rising, and productivity growth remains subdued.
• The Board stated that Australian economic growth has slowed, and while labour market conditions have eased slightly, they remain tight. The unemployment rate rose to 3.7% in April, and employment growth has moderated.
• The board added that further tightening of monetary policy may be necessary to achieve inflation target returns, contingent upon economic and inflation developments.
• Cash ACGBs are 6-9bp cheaper after the RBA decision to be 4-7bp cheaper on the day. The AU-US 10-year yield differential +7bp at +12bp.
• RBA-dated OIS pricing is 1214bp firmer for meetings beyond June with terminal rate expectations at 4.30%.
• Swap rates are 1-6bp higher on the day with EFPs 2bp lower and the curve 5bp flatter.
• The bills strip bear flattens with pricing -10 to -3.