Tuesday, 02 April, 2019

AUS rates – Bit of additional debate over RBA related

AUS rates – Bit of additional debate over RBA related semantics today with the spotlight on the inclusion of “The Board will continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time.”. This all feels like splitting hairs to me with the line of least resistance and weight of demand favouring longs still in the front end. We have the budget to come today and following that the focus will shift to the March labour force survey, 18 April, and Q1 CPI due 24 April.

Banks have reported renewed interest to receive May RBA which has lead to an additional 3bps of rate cuts priced with calls that it is “live” growing in popularity. We have seen a few more banks recommending RBA flatteners of late so perhaps its time to look at this in IBs. May/June IB @ -6/-5. Or if feeling a bit more adventurous sell May RBA and buy bills a little further out with FRA/OIS likely to keep coming under tightening pressure and still some steepeness in the fra/ois curve.

Curve has been the other focal point of trading but this could be more a function of end user clients in other products as the catalyst with trades like 1y1y3y2y flatteners attracting heavy interest whilst unwinds further out have been reported. Probably most relevant though has been the weakness in TY. Beyond 10y in the cash space multiple banks have mentioned selling in the 30y space after the end of the Japan fiscal year.