Westpac: HQLA Flows Reflect Market Assumptions

After looking at ACGB & semi flow from ADIs over 2022, then comparing them with 3- & 5-Year average levels in monthly terms, Westpac note that YtD “2022 has seen flows of a much larger scale than the averages over those two periods. That is the same for both ACGBs and Semis. The clear link is the buying necessitated by the running down of the CLF to zero by the end of the year, and the desire to “get ahead of the game”. The question is whether this demand might slow in coming months? May has not been a large buyside month for either HQLA security, with the month providing the smallest semi buying over the past 5 years. That is probably aligned with the fact that state budgets begin to be released in May and June and market participants might pause to parse the implications and also await the new issuance profiles. That is likely to be the case again, although the broader fundamental messaging and budget outcomes should be supportive of the sector as a whole.”