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Westpac note that "Q221 CPI figures will be released on Wednesday. Westpac Economics is forecasting headline CPI at 0.9% for the quarter, which would see the annual pace at around 4.0%, vs. 1.1% in Q1. The trimmed mean is forecast to rise 0.5% q/q or at a 1.6% annual pace, again up from Q1. While we keenly await Wednesday's data, and believe a surprise will still have some power to influence yields on the day, we think that this will not be the main catalyst for price action in bonds. This is because Q2 CPI does not capture the full effects of the lockdowns in Sydney, which has become the main focus for risk in recent months."

  • "10-Year BEIs are likely to remain around the 2% level after their substantial re-pricing earlier on this year. Even so, we still see the risk rewards for nominals as slightly skewed toward bearish outcomes, and for the curve to move steeper as a result. The recent curve flattening may have been overblown given our own expectations of the forward inflation rate. The curve does tend to peak before the first rate hike, and, while the curve might have a further bear steepening impulse once the tightening cycle is underway, the broader trend is always toward flatter curves. That is perhaps "yield curve 101," but the really interesting aspect of current curve shape, if the current flattening were to continue, is that it would be occurring well before the first hike and also current market pricing suggests that the RBA will not need to move to a restrictive policy stance, but rather remove policy accommodation in this cycle. That suggests the curve should stay steeper for longer than it has previously, supported by the 10-Year bond yield staying above the cash rate."