AUD Swaps: 25bps RBA hike and more to come; 3y well bid; Busy 2y forward flows

• RBA hikes 25bps, more to come

• 3y well bid after RBA; Busy 2y forward trades

• New issues – KBN 2027 Kanga upsize

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RBA hikes 25bps, more to come

As had been widely expected, the RBA hiked the country’s benchmark interest rate by 25bps to 3.1%, the highest level since November 2012. “The board expects to increase interest rates further over the period ahead, but it is not a pre-set course…the size and timing of future interest rate increases will continue to be determined by the incoming data,” said RBA Governor Philip Lowe in a post-meeting statement.

Market players said Lowe’s hawkish comments were a bit of a shock to some traders as some had expected at least a slightly dovish stance if the central bank tightened again this time. Indeed, the market did price a slight chance of a pause ahead of the meeting as the most recent inflation data showed some cooling signs. Following this latest round of hike, CBA revised up its terminal rate forecast from 3.1% to 3.35%.

3-year bond future was firmer in the morning, but fell by 7-ticks to 96.89 in the afternoon session. 10-year bond future was weaker at the open, but also fell after some brief rally around mid-day. The 3s/10s futures curve was 3.5bps flatter at 30bps in mid-afternoon Sydney trading.

3y well bid after RBA; Busy 2y forward trades

In swaps, 3-year was subdued in the morning before the RBA decision. It was then paid up to about 3.61% in good size, up from previous close of 3.535%.

There was also busy 2M and 6M forward trades in 2-year as players re-aligned their positions to reflect further RBA hikes. "They had bet that the RBA would pause when they meet next time in February, now it would not be realised at all," a swapper explained of the flow. 2-year outright traded in a tight range around 3.655%, up from yesterday’s close of 3.57%.

10-year has shown relatively mild reaction with only very light paying at up to 6.5bps higher of 3.99% in mid-afternoon Sydney trading.

EFPs were mostly wider with 3-year up 0.5bp at 50.25bps and 10-year up 0.75bp at 58.5bps.

New issues – KBN 2027 Kanga upsize

• CBA sold via itself AUD145m in 4.4%, December 12, 2025 bonds.

   

• Kommunalbanken AS upsized its existing 1.9%, January 19, 2027 Kangaroo bonds by AUD60m to bring the new size to AUD615m. Lead is DB.

   

• Westpac Banking Corp self-led AUD1.7bn in December 8, 2023 FRNs that pay AUD 3M BBSW + 50bps.