Weaker With U.S. Tsys Despite Weak Local Data

ACGBs towards morning lows (YM -5.0 & XM -6), despite a much softer than expected Building Approvals reading for January, as U.S. Tsys trade on the softer side. Cash ACGBs are weaker by 4-6bp but outperforming U.S. Tsys with the 10-year yield differential at -16bp, 2bp lower on the day and 12bp lower on the week. The 10-year yield differential is back at mid-December levels, all but reversing the ‘China re-opening' impact as the relentless move higher in U.S. Tsy yields combines with some softer local data. The cycle low in the AU/US 10-year differential is -35bp, set in mid-November, when talk of the possibility of policy divergence between the RBA and the Fed peaked.

• Swaps remain 6-9bp weaker, with EFPs 2-3bp wider and the 3s10s curve 3bp steeper.
• The Bill strip is 4-7bp cheaper, unwinding a large part of yesterday’s post-data rally.
• RBA-dated OIS pricing builds on yesterday’s softening for meetings beyond April, with pricing -2 to -3bp. Terminal rate pricing is ~4.21% with March meeting pricing softening to around a 92% chance of a 25bp hike.