AUD Swaps: 2-way cautious trades ahead of data; DB sees 4 more 25bp RBA hikes

• DB sees four more 25bp RBA hikes

• 2-way cautious trades ahead of retail sales data

• AOFM sells 2041 ACGBs

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DB sees four more 25bp RBA hikes

AUD bond futures have been moving in a tight range around previous close as players have mixed views over the recent US data as well as the near- to medium-term RBA stance.

Deutsche Bank, for example, believes that the RBA would deliver four more 25bp hikes this year to 4.1% by August, as its previous terminal rate of 3.35% at the next RBA meeting on February 7 would not be enough to bring Australian inflation back to target this cycle. On the other hand, a market participant said there have been whispers about RBA being the first major central bank to cut rates to avoid an economic downturn due to high living costs and heavy mortgage burden which has yet to be felt by consumers.

Currently, the rates market is pricing in a 25bp rate hike next Tuesday to bring the benchmark rate to 3.35%, and implying at least one more rate increase to a terminal rate of 3.8%.

Of course, retail sales data for December, which will be released tomorrow, will be another key indicator of the next RBA move. Economists expect it to show a month-on-month decline of 0.2%, compared to 1.4% of growth in the previous month.

10-year bond future was down by 3-ticks in the morning session before some firmer upward trend in the afternoon session when it was up by 2.5-ticks at 96.46. The 3s/10s futures curve was half a basis point flatter at 34bps.

2-way cautious trades ahead of retail sales data

Echoing the move in the underlying cash bond market, there has been interests at both sides of the fence in swaps in cautious trade ahead of the domestic retail sales data.

10-year, for instance, was paid up 2.5bps intraday at 4.1575% after lunch break, but there has also been decent amount of receiving at 4.12% in the afternoon session.

5-year traded briefly at 2.75bps higher of 3.87% before activity there faded in mid-afternoon domestic trading.

At the short-end, 3-year traded mostly in a tight range around 0.5bp lower of 3.645%, although there was also trade up to 2bps higher of 3.67% after mid-day.

Swap rates were marked around 2-3bps lower at time of writing and EFPs were broadly tighter. Key EFPs were marked as: 3-year down 0.25bp at 42.75bps, 5-year down 1.25bps at just a tad above 62bps, 10-year at 0.75bp tighter of 56.25bps.

AOFM sells 2041 ACGBs

The AOFM sold AUD300m in 2.75% May 21, 2041 ACGBs at tender today, bringing the new size of the line to AUD13.8bn. Bid-to-cover was 2.95 times and average yield was 3.9341%.