Slightly Cheaper Ahead Of Q1 CPI

ACGBs (YM -2.0 & XM -0.5) are cheaper ahead of today’s Q1 CPI data after US tsys finish modestly richer. Weaker-than-expected Flash PMIs underpinned a short covering rally for US tsys after a heavy April.

• Stronger than expected new home sales and a bounce in US equities tempered rates support by the close. The US 2-year yield dropped 4bps to 4.93%, while the 10-year finished at 4.60%, 1bp lower.
• The local market’s focus will however be on Q1 CPI data. Q1 CPI will be watched closely as it feeds into the RBA’s updated outlook published on May 7 and thus also its decision-making. (See MNI Q1 Inflation Forecast To Ease Substantially, Watch Services)
• Bloomberg consensus expects it to ease to 3.5% y/y from 4.1% but for the quarterly rise to pick up. Trimmed mean is forecast to drop to 3.8% from 4.2%, helped by favourable base effects.
• Cash ACGBs are 1-2bps cheaper, with the AU-US 10-year yield differential at -32bps, around its cycle low.
• Swap rates are 1-2bps higher, with the 3s10s curve flatter.
• The bills strip has bear-steepened, with pricing -1 to -3.
• RBA-dated OIS pricing is 2bps firmer for 2025 meetings. A cumulative 17bps of easing is priced by year-end.