AUD Swaps: Cautious 3-10y offers; Futures curve bull-steepens

Workstations 26 May 2022
Anxiety over the banking sector in the US has backed further receiving in 3-10y AUD swaps, though trading has been cautious ahead of the US Fed.

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  • 3s/10s futures curve bull-steepens

  • Cautious 3-10y offers; EFPs mixed


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3s/10s futures curve bull-steepens

AUD bond futures rallied at the open but underperforming the move in the USD rates market on Friday.


2-year US treasury yields plummeted by 34bps on Friday as players unwound their bets on further US Fed hikes and shifted to betting for an easing this year following heightened anxiety over the health of the banking sector. Indeed, US banks have borrowed a combined USD164.8bn in recent weeks, suggesting that there has been funding stress following the failure of SVB. Additionally, while a few banks said they would join hands to rescue First Republic, there have been a lot of question marks whether it would stop the crisis from happening. The breakeven inflation rate for the 10-year linker also fell 7bps, indicating that the market has changed their views on the economic growth in the US.


3-year bond future was up by up to 11-ticks in the morning session. Dealers said the news about UBS’s agreement to buy Credit Suisse has limited a strong rally in AUD rates in early morning domestic trading. However, sentiment deteriorated after lunch break and 3-year bond future rose by 20-ticks to 97.21, and the 3s/10s futures curve bull-steepened by 4.5bps to 45bps.



Cautious 3-10y offers; EFPs mixed

Swaps have been offered but trading activity has not been exceptionally busy ahead of the US Fed decision later this week. 3-year swaps, which closed around 3.5% on Friday, were offered down to 3.405% in late-morning domestic trading. 5-year was last seen traded% below 3.6%, after being traded mostly around 3.665% and 3.675% in the morning. 10-year has been relatively busier with more activity seen in mid-afternoon domestic trading. It traded down to below 3.9% compared to previous close of 4.035%.


EFPs were mixed with 3-year up 0.75bp at 52.5bps, 5-year down 0.5bps at 77.25bps, and 10-year unchanged at 63.25bps.