AUD Swaps: Swaps well offered since overnight; 3s/10s box seen steeper

• 3y bond future rallies by more than 25-ticks amid SVB concerns

• Swaps well offered since overnight trading

• 3s/10s box seen steeper

• Domestic data mixed

• New issues

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3y bond future rallies by more than 25-ticks amid SVB concerns

AUD bond futures extended the sharp rally again, with 3-year again leading the move. It was up by more than 26-ticks near market open before being marked 17.5-ticks higher at 96.964 in mid-afternoon Sydney trading. Equities were down by around 1.5%.

The rally in short-dated AUD rates has been driven by similar move in the USD rates market. 2-year UST yields plunged by more than 55bps in overnight trading after the cash settlement. That means it has fallen by about 100bps over the three days, or the  steepest move since the stock market crash in October 1987. Investors have begun to aggressively sell their US bank shares and scrap their bets on more US Fed hikes.

Swaps well offered since overnight trading

The rally in 3-year AUD swaps indeed started in overnight trading when it was offered down to below 3.5%, compared to those traded around 3.7% near market close on Monday. Receiving in 3-year continued in domestic trading and 3-year traded briefly through 3.42% although the majority of the flow today has been between 3.525% and 3.575%.  3-year EFP widened up by 4.25bps to 56.25bps.

Slightly up the curve, 5-year was offered down more than 10bps in overnight trading and traded a few basis point lower at 3.82% in mid-afternoon Sydney trading.

10-year has been well offered with good amount of activities throughout the day. It traded below 3.95% in the US session, and briefly at down to 3.88% soon after market open in domestic trading. In the afternoon session, it went through mostly between 4.09% and 4.095%, compared to previous close of around 4.125%. 10-year EFP was 3.25bps wider at 65.5bps.

3s/10s box seen steeper

With the US regulators addressing financial stability concerns, ANZ believes that the rally in rates may be overdone as the Fed program is likely to be supportive enough and that risk sentiment will recover once the initial shock fades.

However, the bank has raised concerns over the timing and so it has recommended to avoid curve trades while keeping its existing 1y1y/2y1y swap flatter as a “soft” way of expressing its expectation of a strong domestic jobs report.

Nevertheless, it identified some opportunities in EFP box steepeners, as 3y EFP will likely outperform with any easing in conditions, and the box trade is also less exposed to any directional moves higher.

Domestic data mixed

Data released by CBA earlier today showed that household spending was up 4.5% year-on-year in February, down from 5.3% from the previous month. The index compiled by NAB on Business Confidence dipped to -4 in the same month from 6, while Business Condition was down a point to 18. Westpac Consumer Confidence Index was unchanged in March at 78.5.