Steeper

Aussie bond futures have traded in a similar fashion to their U.S. Tsy counterparts. The cheapening witnessed in the space has seen the major contracts register the lowest levels observed in a couple of weeks, before they ticked away from session lows. YM & XM print -4.0 & -5.5 on the day, respectively, 2-3bp off their respective session toughs. Cash ACGBs run 2.5-7.5bp cheaper across the curve, with the super-long end leading the weakness. EFPs are wider on the day, with the 3-/10-Year box steepening. Bills run +1 to -7 through the red, twist steepening.

• As we have noted elsewhere, there hasn’t been much in the way of fundamental news flow to counter the general cheapening impetus in core global FI markets, with Asia-Pac participants reacting to Wednesday’s Fedspeak, the post-CPI pullback from best levels in U.S. Tsys and an uptick for the majority of the major Asia-Pac equity benchmarks.
• In terms of domestic matters, there was a slight moderation in consumer inflation expectations produced by the Melbourne Institute, which eased to 5.9% from 6.3%, pulling further away from the cycle high of 6.7% that was registered in June. While the RBA will welcome the moderation from cycle highs, it has stressed the need to maintain the anchoring of inflation expectations (medium-term market-based measures are displaying a much greater degree of anchoring) so that the inflation psychology in Australia does not change. Further monetary tightening is in the pipeline, with the RBA clearly cognisant of the wage pressure evident in the communique it has received via its liaison scheme, on top of its projections for CPI to peak in Q422 (at 7.75%).