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Weaker, Expected Terminal Rate Above 4.0%

AUSSIE BONDS

ACGBs are sitting weaker (YM -9.0 & XM -9.5), just off session cheaps, after the weaker lead-in from US tsys. At current levels, ACGB futures are at their lowest levels since March 13.

  • Without economic data today local participants have likely been on US tsy and headlines watch.
  • US tsys are slightly stronger in Asia-Pac trade after being pressured in NY trade by optimism regarding a potential resolution to the debt ceiling issue, as well as hawkish remarks from the Dallas Fed's Logan, who indicated support for another interest rate hike in June.
  • Cash ACGBs are 9bp higher with the AU-US 10-year yield differential +2bp at -7bp.
  • Swap rates are 9-10bp higher with the 3s10s curve flatter.
  • The bills strip is steeper with pricing -4 to -14.
  • RBA dated OIS is 2-11bp firmer for meetings beyond June with early '24 leading. There is an 18% chance of a 25bp hike at the June meeting priced. The expected terminal rate is at 4.01%, the highest level since March 9.
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