AUD Swaps: Box edges wider as record CPI print expected

Up chart 25 Mar 2021
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The AUD 3s/10s box has edged wider in calm trade. Tomorrow's CPI report is expected to show inflation is running at a 22 year high.

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  • Box edges out in calm trade

  • CPI tipped to make 20y high

  • New issues

 

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Box edges out in calm trade

The AUD rates market has recovered some overnight losses and traded firmer this morning. In mid session Sydney trading futures implied yields are up to 3bps lower and the 3s/10s futures curve is 1.5bps flatter at 20bps.

 

In the short end of the swap curve there has been trade in 3- and 4-year swaps at levels around 3.45% and 3.625-3.365%. 5- and 7-year deals have gone through the market around 3.66% and 3.73%. There have been some trades in 8-years around 3.77% and the range in 10s has been 3.31-3.32%.

 

Forward space has been quiet but there has been some interest and light flow in the 1y1y and 1y5y structures.

 

Swap spreads are steady to a touch wider and the 3s/10s box spread has edged out beyond 16bps. The 3- and 10-year EFPs are marked around 27.875bps and 44bps respectively.

 

 

CPI tipped to make 20y high

An inflation report due for release Wednesday is expected to show that price pressures are the strongest they’ve been in over two decades. CPI printed up at 5.1% year-on-year in Q1 and the median analyst forecast is for it to rise further to 6.3% in Q2 when the data is released tomorrow. Australian CPI has not been at this level since Q4 1990.

 

This momentum has been behind the quick pace of monetary tightening by the RBA. On that front the bank is expected to deliver a fourth consecutive rate hike next week. Most expect a third straight 50bp increment but there has been talk about the possibility of a 75bp move.

 

 

New issues

  • NAB is planning a new benchmark sized callable 10yNC5 fixed- and floating-rate bond issue. The subordinated Tier 2 self led deal is expected to price around BBSW/swaps + 290bps.