Squeezing Higher

Risk aversion surrounding the long reaching Russian military convoy moving toward the Ukrainian capital of Kyiv, a reduction in Fed tightening priced into the market and a bid for core global fixed income markets, exacerbated by short U.S. Tsy positioning, supported Aussie bonds during the overnight session. There is of course an element of short positioning evident in the local market, but we will have to assess that after the next open interest update from the ASX (after close today).

• The major contracts have eased back from their overnight extremes, but still sit comfortably above settlement levels, with YM +8.5 and XM +10.0. The 7- to 10-Year zone of the curve outperforms in cash ACGB trade.
• Note that the AU/U.S. 10-Year yield spread has moved out to the ~35bp area. As we have flagged on several occasions, recent history has typically seen interest to establish cross market narrowers above the 30bp level, however, the continuation of heightened market volatility may limit appetite for such positioning.
• Q4 GDP data headlines the domestic docket today, with economists marking estimates higher in light of the release of the GDP partials (BBG median looks for +3.5% Q/Q & +4.1% Y/Y). Elsewhere, the AOFM will tap its longest ACGB line, the Jun-51, for A$300mn.