Slightly Stronger Ahead Of RBA Policy Decision

ACGBs are slightly stronger (YM +2.0 & XM +1.5) after the heavy Asia-Pac tone for US tsys extended in London trading. However, this trend quickly reversed due to disappointing US ISM Services data. The May ISM Services report revealed the lowest level since December 2022, and the Prices Paid index dropped to its lowest point since May 2020. Additionally, the Employment component fell below 50 (49.2), marking the first time since December.

• Cash ACGBs opened 1-2bp cheaper with the AU-US 10-year yield differential +4bp at +9bp.
• Today the RBA meets and once again, the decision appears to be a contentious one, with economists holding divergent views. Based on our analysis, we anticipate that the RBA will adopt a cautious approach this time, given the recent moderation in data. It is likely that they will opt to observe and evaluate another month's worth of data, including the Q1 national accounts report scheduled for tomorrow. However, this does not imply that the hiking cycle has come to an end. See MNI RBA Preview here.
• RBA-dated OIS pricing is little changed across meetings. The market is currently attaching a 46% chance of a 25bp hike at today’s meeting.
• Swap rates opened 1bp lower.
• Bills pricing is +1-2 across the strip.
• The local calendar is also scheduled to release Q1 Current Account and Net Exports data today.