Watching The Plight Of U.S. Tsys Ahead of RBA Next Week

ACGBs strengthen a little on weaker-than-expected home loan data for January but in large part hold U.S. Tsy-induced morning weakness with YM -6.0 & XM -5.0. Cash ACGBs and swaps also firm from morning cheaps to be 5-6bp weaker on the day with curves largely unchanged. The market’s attention is nonetheless likely to remain firmly focused on the plight of U.S Tsys, at least until the RBA Policy Meeting next week. U.S. Tsys have opened cheaper in Asia-Pac trade after the yield on the benchmark 10-year closed above 4.00% in the NY session, representing its highest level since November. Moreover, the 2-Year yield rose to levels not seen in more than a decade.

• AU/U.S. cash yield 10-year differential widens 2bp to -14bp, raising questions as to whether ACGB outperformance this week has run its course. The 10-year differential hit an intraday low of -20bp yesterday versus the ’22 high of ~+25bp.
• Ahead of the RBA’s rates decision on Tuesday, RBA-dated OIS is pricing a 92% chance of a 25bp hike. More broadly, pricing for meetings beyond March is 1-5bp firmer with December leading, as the market prices out a chance of an easing this year. The day after the RBA’s February Meeting and hawkish communique, the market had -15bp of easing priced by end-22.