AUD Swaps: Strong 3-10y offers ease; Lloyds 6y callable Kangas

Up arrow chart 8 apr 2022
Weak US data and continued worries over the banking system in the US have triggered strong offers in 3-10y AUD swaps in earlier trading.

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  • 3y bond future extends rally after weak US jobs data

  • ANZ sees risks skewed towards rates selling off

  • Strong 3-10y offers eases after lunch break; EFPs wider

  • New issues – Lloyds Bank 2029 callable Kangas


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3y bond future extends rally after weak US jobs data

AUD bond futures rallied hard again, led by 3-year, as the market has been tracking the sharp gains in the USD rates market on Friday.


US treasury yields tumbled on Friday as the latest jobs data indicated a higher-than-expected unemployment and underemployment rate in February. Wage growth in the same month was however slower than the market had forecast. These were all on top of the continued worries over the economic situation in the US following the collapse of Silicon Valley Bank (SVB). 2-year US treasury yield, which fell by almost 30bps on Friday, continued its dive and plummeted by more than 20bps in Asia trading today.


The above have prompted traders in the US and in Australia to revise their US interest rate outlook. The market is now pricing in 25bps of interest rate hike this month, down from prior expectations of half a point of hike. Consensus is for a 25bp rate cut by the end of 2023 too. 


In mid-afternoon Sydney trading 3-year bond future was up 12.5-ticks at 96.79, and the 3s/10s futures curve was 6.75bps steeper at 32bps.



ANZ sees risks skewed towards rates selling off

ANZ had predicated headlines around the fall of SVB to dominate the start of the week. However, the nature of SVB’s balance sheet (a large share of its assets is securities holdings which are largely unhedged) means that it is “likely to be an idiosyncrasy than representative of US mid-size banks”. Therefore, the team said in a strategy piece released today that there could be an opportunity to go short later this week, as rates could unwind the rally quite quickly, assuming a resolution is found swiftly. In addition, focus will be on US CPI data which will be released tomorrow, and the team believes that risks are skewed towards rates selling off in response to the data.



Strong 3-10y offers eases after lunch break; EFPs wider

3-year swaps, which traded around 3.795% near market close on Friday, were offered down to 3.575% soon after market open. However, such drastic receiving faded very soon and it then traded mostly between 3.675% and 3.69%.


Trading in the 5- to 10-year area has been more cautious ahead of the key US data. A dealer reported receiving in 10-year at down to below 4% in the morning before being traded between 4.12% and 4.125% near market close. These compared to those traded up to near 4.19% on Friday.


EFPs were wider across the curve as swaps have been underperforming their underlying ACGBs on the rally. Key EFPs were marked: 3-year up 2.5bps at 50.5bps, 5-year up 4bps at 68bps, 10-year up 1.25bps at 60.5bps.



New issues – Lloyds Bank 2029 callable Kangas

  • Lloyds Bank raised AUD600m via selling the following March 17, 2029 Kangaroo bonds with single call at par in March 2028:


    • AUD200m, paying AUD 3M BBSW + 200bps.

    • AUD400m, 5.802%.