AUD Swaps: Curve shifts downward; 3-10y well offered after ECB and BOE

• 10y bond future outperforms after BOE and ECB

• Swap curve shifts downwards; One-way receiving interest

• New issues

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10y bond future outperforms after BOE and ECB

The AUD rates market rallied hard today, as the latest interest rate hikes by the BOE and the ECB have not triggered fears over a longer-term monetary policy tightening. Indeed, many market participants now believe that interest rates in these two regions, together with the US, are nearing their peak. As such, the market began to unwind earlier aggressive bets. In mid-afternoon Sydney trading 3- and 10-year bond futures were up 13- and 16.5-ticks at 96.98 and 96.62 respectively. The 3s/10s futures curve was 3.5bps flatter at 36bps.

In swaps, there has been good amount of receiving in 10-year since market open. A trader said swappers are concerned more about the longer-term effect on the economy in Australia due to the renewed expectations about policy moves in those countries.

“The near-term monetary policy move in Australia will still depend more on how we have been doing, and the RBA may not sound as dovish when they meet next week,” the source explained of the slightly underperformance in shorter-dated AUD rates.

The jobs market in Australia remained tight with unemployment rate falling from 4.6% in December to 4.2% in January. Inflation was up from 7.3% in November to a 33-year high of 7.8% in December.

Swap curve shifts downwards; One-way receiving interest

The swap curve made a downward shift with swap rates down about 11bps across the curve at time of writing. Flow wise, there has been almost only one-way interest throughout the day. 5- and 10-year traded mostly around 12-12.5bps lower at down to 3.6% and 3.9% respectively. The source also noticed some good-sized flow around these two tenors after lunch break. 3-year traded in a tight range around 8bps lower of 3.4425% in the morning before last seen changing hands at 3.41%.

EFPs were tighter at the shorter-end. 3-year was down a basis point at 39.75, 5-year down 1.75bps at 59.5bps while 10-year was marginally wider at just above 52.75bps.

The 3s/10s EFP box steepened up by a basis point to 13bps.

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