Twist Steepening Post-U.S. CPI & Pre-FOMC

Aussie bonds generally firmed on Wednesday, leaning on the post-U.S. CPI bid in U.S. Tsys as well as a modest, and probably related, uptick in U.S. Tsys during Asia-Pac dealing. The longer end of the curve struggled to turn bid after Tuesday’s turn away from best levels for U.S. Tsys, which was aided by a poorly received round of 30-Year Tsy supply, resulting in some modest twist steepening. That left the major ACGB benchmarks 4bp richer to 1.5bp cheaper at the bell, with a pivot around 20s.

• Futures volume and OI have rolled to H3 in the bond contracts, with YM +4.8 & XM +3.6 at the close.
• EFPs widened a touch in the afternoon, which may have meant that payside swap flows helped the space away from best levels.
• Bills were flat to +8 through the reds, flattening a touch, while RBA dated OIS was little changed come the close, pricing ~16bp of tightening for the Feb ’23 meeting and a terminal cash rate of ~3.65%.
• RBA Governor Lowe’s latest address failed to provide anything in the way of meaningful market input, which was expected given the topic and scene of his speech.
• Looking ahead, Thursday will see the release of the monthly labour market report and inflation expectations data, along with the Sydney reaction to the latest FOMC decision.