Twist Flattening In Sympathy With Tsys, Lowe Notes Potential For Pause For First Time

The twist flattening impulse from Tuesday’s U.S. Tsy trade has spilled into the ACGB space, with YM -4.0 & XM at unchanged levels in early Sydney trade (in line with late overnight levels), while wider cash ACGBs see ~3bp of cheapening to 1.5bp of richening, with a pivot around 7s. Bills run 2-7bp cheaper through the reds, steepening. Terminal cash rate pricing in RBA dated OIS continues to hover just below 4.00% in the wake of yesterday’s RBA decision.

• The key phrase from Governor Lowe’s Tuesday dinner address (made after the Sydney close) saw him note “we are not on a pre-set path, though. If we need to step up to larger increases again to secure the return of inflation to target, we will do that. Similarly, if the situation requires us to hold steady for a while, we will do that. Given the uncertainties regarding the outlook, we will be watching very carefully how the economy and the inflation pressures evolve over the summer.”
• The reference to a potential pause was the first such outward utterance from Lowe during the current tightening cycle.
• Elsewhere, Lowe reiterated that the Bank’s fight against inflation is its major challenge, while re-flagging its data-dependent stance.
• A$800mn of ACGB Nov-28 supply is due later today, as is housing finance and building approvals data.