Slightly Richer, RBA Gov. Lowe Warns About Large Wage Increases

ACGBs are slightly stronger (YM +1.0 & XM +3.0) at Sydney session bests as US tsy futures unwind the weak opening in Asia-Pac trade. US tsy futures are at 112-12, -1 versus Friday’s close, after initially cheapening to 112-03+ on news of a debt ceiling deal.

• US tsy futures are slightly weaker in Asia-Pac trade. Cash tsys are closed today for the Memorial Day holiday.
• Cash ACGBs are 2-3bp richer with the AU-US 10-year yield differential -3bp at -10bp.
• Swap rates are 2-3bp lower with the 3s10s curve 1bp flatter and EFPs little changed.
• Bills strip twist flattens with pricing -1 to +3.
• RBA dated OIS pricing is 1-2bp firmer for meetings out to September but 1-2bp softer for meetings beyond.
• The AFR reported that the RBA warned the government in a recent meeting not to allow large wage increases ahead of June’s announcement of the size of the minimum wage rise. Apparently, Governor Lowe said that increases above 2%-3% plus any productivity growth would be inflationary. A 7% increase has been proposed and is currently being looked at by the Fair Work Commission. The government has criticised the leak from the meeting, as the contents had been intended to remain confidential.