AUD Swaps: Unemployment at 48y low backs light swaps bid

• Australia’s jobless rate stays at 48-year low

• Light 3-10y swaps bid

Australia’s jobless rate stays at 48-year low

The US Fed did not disappoint the market by slowing down its pace of interest rate hike by delivering only 0.5% of rate raise after several rounds of 75bps rate hike. On top of that, UK inflation also cooled from 11.1% in October to 10.7% in November, and it offered the market hopes that the BOE may turn less hawkish although the key is the central bank’s decision later tonight Asia time. Consensus is for BOE to hike another 50bps to 3.5%.

In the domestic front, the already tight labour market continued to stay strong with unemployment rate in November unchanged at its 48-year low of 3.4%. There was a much higher-than-expected job creations although the number of full-time new jobs fell from the previous period. Consumer inflation expectation in December fell from 6% in the previous month to 5.2%.

Players in the Australian market generally believe the RBA to stay hawkish given such a strong labour market. Speaking of the inflation in the UK, one market participant said the rate was still elevated and it is too soon to conclude that inflation there is cooling. In early-afternoon Sydney trading 3-year bond future was down 2-ticks at 96.892, and the 3s/10s futures curve was a basis point steeper at 29bps.

Light 3-10y swaps bid

Trading in AUD swaps was not overly busy in the morning session with only very light paying in key tenors. A trader said swappers had largely factored in the events both overseas and in Australia, and so they have been pretty calm. However, the lack of flow saw a wilder swing in price and swap rates were up by a few basis points across the curve with stronger price action seen at the shorter-end of the curve.

Flow-wise, 3-year swaps traded up to 5bps higher of 3.65% before being marked at 3.67% at time of writing. 5-year traded briefly before lunch break at 3.835%, or up about 4bps from previous close. 10-year, on the other hand, went through about 3.5bps higher of 4.055% at mid-day.