Slightly Stronger After The Minutes Release

ACGBs are 1bp stronger (YM -3.0 & XM -2.0) after the release of the RBA Minutes for the May meeting. The RBA surprised the market by raising rates 25bp to 3.85% in May after discussing two options, either keeping the rate unchanged or increasing it.

• Members acknowledged the significant uncertainties surrounding the economic outlook, particularly for household consumption, but on balance, they judged that a further increase in interest rates was warranted to bring inflation back to target and to ensure that inflation expectations remain anchored.
• The decision also took into account the recent data releases, the updated set of forecasts, and the evolving nature of the risks, including weak productivity growth.
• Members also agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve.
• Cash ACGBs are slightly richer after the Minutes release to be 2-3bp cheaper on the day with the AU-US 10-year yield differential +1bp at -5bp.
• Swap rates are 1-3bp higher on the day with the 3s10s curve flatter.
• Bills are 1-2bp stronger after the Minutes with the strip steeper and pricing -1 to -3 versus yesterday’s close.
• RBA dated OIS is little changed after the release sitting flat to 3bp firmer across meetings.