Thurs saw NAB hike its variable...........>

AUSTRALIA: Thurs saw NAB hike its variable mortgage rates by 12-16bp, after the

bank implemented a hike in new borrower mortgage rates back in Nov, in the wake

of the remainder of the Big 4 hiking their broader mortgage rates in Aug/Sep.

- NAB cited an increase in funding costs. 3-Month AU FRA/OIS spread has hit

levels not seen since July, pinched at both ends of the scale. Funding matters

persist, with the 3-Month BBSW fix seemingly more reluctant to pull back after

the turn of the year & RBA repo rates already printing above 2.10% in early '19.

Familiar issues dominate here, with large offshore demand, flat domestic fund

holdings, regulatory pressures for banks to hold more collateral at quarter end

& perhaps the size of the repo market all facilitating a move higher in the

short-term cost of funding in Australia. On the other end of the equation. The

global econ backdrop, eyes on AU econ fragility & a lower for longer RBA outlook

has pressured OIS. BBG's WIRP function notes that the OIS curve points to a 30%

chance of at least one 25bp cut from the RBA by year-end (based on the

interpolated methodology), after pricing in a near 50% chance of at least one

25bp hike from the RBA over the same horizon at the back end of November.