March 22, 2023 02:28 GMT
STIR: Expected Terminal Rate Declines Similar in AU & US
The change in narrative from data dependency to global banking concerns has delivered a dramatic re-pricing in US and AU STIR over the last couple of weeks. While the outright moves are noteworthy, it is the relative moves that reveal the most about the market’s motivations.
- Next Meeting: with pre-banking crisis messaging from the RBA signalling a possible pause (confirmed by RBA Minutes yesterday) and the Fed canvassing larger hikes and higher rates, it should have surprised few that AU STIR has moved to price no change for April versus 20bp of tightening from the Fed at tonight’s announcement.
- Terminal Rate Expectations: Relative pricing is a little more curious as far as terminal rate expectations are concerned. Despite starting from a lower level and with only very tentative signs of a peak in inflationary pressures, AU terminal rate expectations have declined 77bp versus 74bp in the US.
- While this may simply reflect the AU market’s confidence in the peak inflation narrative (monthly CPI released Wednesday next week), it may also be reflecting the RBA’s reputation as a chronic under-shooter of OIS forward pricingthis tightening cycle versus the Fed’s performance as an over-shooter.
Figure 1: Terminal Rate Expectations – AU Vs. US
Source: MNI – Market News / Bloomberg
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