AUD Swaps: Curve flatter as longs given and shorts better bid

• AUD rates market extends gains after US Fed minutes

• Longs offered; Shorts slightly better bid

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AUD rates market extends gains after US Fed minutes

The AUD rates market headed for the third consecutive of gains since it started the New Year. The move echoed those in the US Treasury market in overnight trading.

On Wednesday, US treasuries were lower amid demand for safe-have following the latest hawkish minutes from the US Fed meeting. According to the document, none of the bank’s top officials expected that it would be appropriate to ease this year, contrasting what the market implied. IT also said that the downshift to 50bp hike last month was not an indication of any weakening of the committee’s resolve to achieve its price-stability goal. Prior to the release of the minutes, Minneapolis Fed President Neel Kashkari even said the target rate would rise to 5.4% and “potentially higher than that”. All these were despite of latest ISM data showing manufacturing activity in the US contracted in December again, and a further reduction in job openings in the same month. The market now believes that the Fed would be forced to ease given the situation and so the rally in the rates market.

In late-afternoon Sydney trading 10-year bond future was up 7.5-ticks at 96.15, and the 3s/10s futures curve was 6.5bps flatter at 35bps.

Longs offered; Shorts slightly better bid

Swaps have been offered at the longer-end but slightly better bid at the short-end, tracking the flattening move in the cash bond curve.

Flow wise, a dealer reported decent amount of receiving in 10-year since market open when it traded around 1.5-3bps lower. It then went through down to 5.5bps lower at 3.32% after lunch break. 5-year traded down to 0.5bps lower of 4.1125% in the afternoon session before some sporadic paying at about 2.25bps higher of 4.14% afterwards. 2- and 3-year swaps, on the other hand, traded 1.5-2bps higher, backed by paying interest there.

EFPs were wider on the day as swaps have been underperforming their underlying ACGBs. Key EFPs were marked as follows: 3-year up 1.75bps at 42.25bps, 5-year up 0.75bp at 63.75bps, 10-year up 3.25bos at 52.25bps.