Sharply Weaker Despite Retail Sales Miss After BoJ Surprises

ACGBs (YM -10.0 & XM -14.5) sit sharply weaker, just above worst levels, as the local market’s attention turn to the surprise decision by the BoJ to tweak its yield curve control (YCC) policy.

• While the BoJ maintained its policy balance rate at -0.1% and the 10-year JGB target at about 0%, it adjusted YCC to be flexibly managed. In effect, the BOJ said that the +/- 0.5% range around 0% in the 10-year JGB will be a “reference, not a rigid limit”.
• Earlier in the day, ACGBs had pared morning weakness after retail sales printed significantly below expectations.
• Cash ACGBs are 9-15bp cheaper with the 3/10 curve steeper and the AU-US 10-year yield differential -2bp at +6bp.
• Swap rates are 8-11bp higher with EFPs 3bp narrower.
• The bills strip bear steepens with pricing flat to -9.
• RBA-dated OIS pricing is 2-5bp firmer for meetings beyond December.
• (AFR) An unexpected fall in spending has given the RBA more reasons to pause raising interest rates. (See link)
• On Monday, the local calendar sees the MI Inflation Gauge, Private Sector Credit and CoreLogic House Prices data.
• Nevertheless, the week’s highlight will be the RBA Policy Decision on Tuesday. Bloomberg consensus expects a 25bp hike to 4.35%.