Tight, Pre-Election Trade

Aussie bond futures have been happy to hug tight ranges, generally tracking gyrations in risk sentiment, with participants on the sidelines ahead of the weekend, filtering through news re: domestic political matters. That leaves YM +6.0 and XM +8.5 at typing, with the contracts never straying too far from late overnight levels during the first half of Sydney trade. 10s provide the firmest point on the wider cash ACGB curve. EFPs are a touch tighter today, with the 3-/10-Year EFP box flattening. Bills run 2-9bp firmer through the reds.

• A quick reminder that the Federal election that will take place over the weekend. It isn’t expected to be too much of a market moving event given the lack of meaningful policy differentiation observed between the ruling coalition and opposition Labor Party. The ruling coalition has narrowed the gap to the opposition during the run in, although most projections still point towards a slim majority for Labor when the dust settles (read more on the matter in our full preview of the event: https://marketnews.com/mni-political-risk-analysis-australia-election-preview )
• Some still pointed to election risk as a headwind for the ASX & AUD on Friday. On this front, we would suggest that a hung parliament outcome (which may require some form of Labor-Green power sharing agreement) would provide much more uncertainty than a win for the opposition Labor Party (which the opinions polls currently lean towards) or the ruling coalition.
• On the supply side, market stabilisation, a digestible DV01, as well as the recent demand for access the line as seen in the RBA’s SLF mechanism in recent days and the relative rarity when it comes to taps of the line seemed to combine to result in a well-received round of ACGB Apr-27 supply. The weighted average yield printed 1.22bp through prevailing mids (per Yieldbroker), with the cover ratio comfortably above 3.00x (very solid in post-QE times). Next week’s AOFM issuance slate sees the AOFM revert to a combination of 10- & 30-Year basket issuance.