Westpac Look For More Active RBA In Coming Days

Westpac "suspect that the RBA will undertake a greater volume of YCC purchases in coming days, as they did in August and again in November and December last year. In our view this could be justified from a "market dysfunction" perspective as much as for the purposes of achieving the (3-Year Yield) target. The other aspect of this price action is the ongoing debate about whether the RBA would extend its YCC target bond from ACGB April 2024 to ACGB November 2024 when that becomes the closest bond to the 3-Year maturity. Westpac's view is that they WILL indeed do so, however that is not consensus, reflected in the fact that the ACGB Apr/Nov 2024 spread is now in the 15-20bp range, with the yield on the latter a long way from the current 0.10% target. Perhaps the market is expecting a shift in the YCC messaging, such that the RBA will shift to ACGB Nov 2024, but with a higher yield target. We think that is unlikely as it would provide the market with a signal that could be counterproductive to the recovery in growth and the "cashflow" benefits of their unconventional policies."