AUD Swaps: 3y given after GDP; Box and Bills/SOFR seen steeper

Steep 5 Jun 2020
Weak domestic data prompted some 3y offers and 10y has been choppy. ANZ sees steeper box and Bills/SOFR.

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  • 3y given after GDP data; Choppy 10y trades

  • 3s/10s box seen steeper - ANZ

  • 2y1y/5y5y Bills/SOFR steepener idea

  • New issues


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3y given after GDP data; Choppy 10y trades

Domestic data once again missed forecast, a day after another 25bp of interest rate hike by the RBA.


Official data released earlier today showed that GDP in the third quarter was up 0.6% quarter-on-quarter, down from 0.9% in the previous period and below economists’ expectation of 0.7%. On an annual basis, it grew by 5.9%, after 3.2% of growth in the 2Q and below consensus of 6.3%.


The market has interpreted the data as signs of slowing economy rather than some success of the recent interest rate hikes. This has backed firmer rally in 3-year bond future, which rose by 4-ticks to 96.94 soon after the data following some slight gains since market open. The 3s/10s futures curve flattened out by 2.5bps to 27bps.


3-year swaps were briefly offered down 3bps at 3.575% at the open. Offered-side flows only returned after lunch break when it traded mostly 1-2bps lower. 3-year EFP widened out by a basis point to 51.75bps.


5-year EFP, on the other hand, was 0.75bp wider despite receiving there at 0.75bp lower 3.7575% in the afternoon session.


10-year has been choppy with some paying at up to 0.75bp higher before lunch break, and receiving at 1.5bps lower at 3.95% in mid-afternoon domestic trading. 10-year EFP widened out by 1.5bps to 60.75bps at time of writing.



3s/10s box seen steeper - ANZ

ANZ noticed that the 3s/10s EFP box has flattened considerably over the past few weeks. The bank maintained the view that swap spreads, especially 3-year, would stay wide given elevated corporate hedging flows and amid more pay-side activities due to the combination of year-end and some opportunism with rates at multi-month lows.


However, corporate paying should slow over summer or a selloff in rates, suggesting that the EFP box should steepen. In addition, any Kangaroo flows in January should be concentrated in the 3- to 5-year area, and the relevant receiving on the back of this should also support box steepeners.


The optics of the upcoming future roll will nevertheless prevent the trade from working in the near term as a lot of the flattening from the past couple of weeks would be undone by the optical shift the EFP box. The team expects the box to steepen by around 3bps based on its current pricing, believe that it’s better to wait until after the roll to consider box steepeners.



2y1y/5y5y Bills/SOFR steepener idea

Expectations about busy new issuances in the 3- to 5-year and 10-year from foreign borrowers in early 2023 also prompted ANZ to have a look at the Bills/SOFR curve. The need to hedge the issues would mean steepening of the curve. The 3-year part may also be helped by any near-term unwind in expectations of tightening in liquidity conditions over 2023 and 2024.


The team said outright paid position looks less attractive than steepeners, as the former has large negative carry. Its preferred expression is to target around the 3- and 10-year points of the curve by a 2y1y/5y5y Bills/SOFR steepener.



New issues

  • CBA issued USD100m in 5.58%, December 13, 2023 bonds via Barclays.


  • ANZ self-led AUD140m in 4.45% in December 15, 2025 bonds.


  • NAB sold via HSBC USD100m in 4.76%, December 8, 2025 bonds.


  • South Australian Government Financing Authority issued AUD1.125bn in June 15, 2027 FRNs that pay overnight RBAC + 31bps.


  • Suncorp-Metway raised AUD1bn via selling the following December 14, 2027 bonds:


    • AUD700m paying AUD 3M BBSW + 125bps.

    • AUD300m, 4.8%.