Yields Shunt Higher, US Tsys Sharply Cheaper After US CPI Beat

ACGBs (YM -13.0 & XM -11.0) are sharply cheaper after stronger than expected US CPI data, fuelled a further scaling back of the US Federal Reserve rate cuts, and prompted a large sell-off in US tsys.

• CPI inflation: m/m (0.4% vs. 0.3% est), y/y (3.5% vs. 3.4% est); CPI Ex Food and Energy m/m (0.4% vs. 0.3% est), y/y (3.8% vs. 3.7% est).
• The March FOMC Minutes reflected concerns that inflation’s progress toward its 2 per cent target might have stalled, and restrictive monetary policy may need to be maintained for longer than anticipated.
• The market now has 42bps of Fed easing priced for this year, well below the 75bps median projection by policymakers at the March FOMC. The first 25bp rate cut has been pushed back to November, from July ahead of the inflation data.
• Cash ACGBs are 11-13bps cheaper, with the AU-US 10-year yield differential 7bps lower at -32bps, marking the lower end of its trading range since late 2022.
• Swap rates are 11-12bps higher, with EFPS tighter.
• The bills strip has bear-steepened, with pricing -3 to -16.
• RBA-dated OIS pricing is 9-12bps firmer for meetings beyond September. A cumulative 25bps of easing is priced by year-end.
• Today's local calendar will see CBA Household Spending and Consumer Inflation Expectations data.