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Tweak To Westpac RBA Call Inspires Brief Knee-Jerk Higher In ACGB Yields


Aussie bonds turned bid in early Sydney trade, taking their cue from U.S. Tsys, which advanced Wednesday amid the perception that a pivot to a slower pace of rate hikes might be nearer than seen earlier. That narrative gained more traction as the BoC unexpectedly shifted to tightening in smaller increments, earnings reports from some U.S. tech giants underwhelmed, while U.S. data earlier this week provided disappointment.

  • ACGBs knee-jerked lower as Westpac's Bill Evans revised his RBA call ahead of next week's Board meeting, after the expectation-busting CPI data yesterday. He now expects the RBA to raise the cash rate target by 50bp rather than 25bp, with the terminal rate call revised to 3.85% from 3.60%.
  • The tweaks to Westpac's rate-hike forecasts come after a number of sell-side desks lifted their peak rate calls in reaction to the CPI report, albeit the view that the most likely scenario for next week is a 25bp hike remained prevalent, with some pointing to an increased risk of an outsized move.
  • The impact of Westpac joining the 50bp camp was reflected in the swaps market. Meeting-dated OIS now prices ~27bp worth of tightening. This represents a jump by just 4bp from the opening levels, but still brought the implied change in cash rate target to multi-week highs.
  • When this is being typed, ACGB curve runs steeper & sits lower, with yields 7.5-8.3bp richer. The RBA-sensitive 3-Year yield has dropped below 3.4%, testing its 50-DMA.
  • Futures remain elevated, with YM +9.0 & XM +8.0, as reaction dips after the update to Westpac's RBA call proved short-lived. Bills run -1 to +16 ticks through the reds.

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