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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
AUSSIE SWAPS
Earlier this week, we highlighted the potential for a 1-year swap Vs. 1-year swap rate 1 year forward (1y1y) to steepen if the RBA paused this week on the grounds that such a move would be consistent with previous interest rate cycles.
- Typically, the 1y Vs. 1y1y flattens into the last rate hike of the cycle, particularly when supported by softer data. When the RBA pauses, that part of the 1y forwards curve tends to steepen as the market shifts to expecting near-term rate cuts. When those easing expectations typically turn out to be premature, the 1y Vs. 1y1y enters a period of volatility until clearer signs of an RBA easing bias emerge.
- With RBA dated OIS priced for 26bp of easing by year-end and RBA Governor Lowe stating rate cuts discussions were premature yesterday in his address to the National Press Club, there doesn’t appear to be much scope for a 1y V.s 1y1y steepening unless one is expecting a favourable outcome from the release of Q1 CPI on 26 April.
- That said, with the RBA’s reputation as an OIS under-shooter this cycle, it may well be that the market looks past Governor Lowe’s guidance to the next easing cycle.
Figure 1: Expected Cash Rate Change 1y Fwd. (%) Vs. 1y Vs. 1y1y
Source: Bloomberg / MNI - Market News
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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