Stronger, Off Bests After Gov. Lowe’s Speech

ACGBs are richer on the day (YM +2.0 & XM +2.0) but slightly weaker after RBA Governor Lowe’s speech and Q&A at the National Press Club in Sydney. Cash ACGBs are 2-3bp richer with the AU/US 10-year yield differential +6bp at -11bp.

• In his speech, Lowe stated that the decision to hold rates steady this month did not imply rate increases are over. Pausing to “assess how the various influences on the economy balance out” was consistent with practice in earlier interest rate cycles, according to Lowe. He also said the board will benefit from an updated set of forecasts at the May meeting.
• During the Q&A session, Governor Lowe emphasised that it's premature to discuss interest rate cuts since the balance of risks is currently tilted towards more rate hikes. However, he noted that any decision would depend on the data.
• Swaps are 6-7bp stronger on the day with EFPs 4bp tighter.
• RBA-dated OIS pricing is 1-3bp firmer for meetings to September and 4-5bp softer beyond. May meeting has a 21% chance of a 25bp hike priced. There is 32bp of easing priced by February 2024.
• Further afield, the global calendar is relatively light with the highlights being European PMIs and US ISM Services.