AUD Swaps: Cautious bid; CBA sees higher chance of pause; AUD/USD 5y5y idea

RBA Building
There has been cautious 3-10y bid ahead of RBA. CBA now sees higher chance of an April RBA pause. ANZ expects AUD/USD 5y5y to widen.

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  • Cautious 3-10y bid; EFPs tighter across the curve

  • AUD/USD 5y5y seen wider

  • CBA sees higher chance of an April pause

  • New issues


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Cautious 3-10y bid; EFPs tighter across the curve

3-year bond was down a few ticks in the morning session. The selloff intensified after lunch break and it was down by almost 10-ticks before being marked 8-ticks lower at 97.05 in later-afternoon Sydney trading.


The selloff in AUD rates has been in part driven by a better-than-expected jobs data. Official data released earlier today showed that job vacancies fell by 1.5% quarter-on-quarter, an improvement from 4.6% of contraction in the previous quarter.


Trading in swaps has been mostly around the most liquid tenors as players were cautious ahead of the RBA meeting. 10-year swaps were paid up 3.5-4.5bps in the morning session, and up to 5-6bps higher after lunch break. 3-year traded up to 6.5bps higher of 3.45% around mid-day, and ease off to trade around 3.435% in the afternoon session.


EFPs were tighter across the curve with strong tightening seen in 5-year where it was down 4.25bps at 68.5bps. 3-year was down 2.25bps at 49bps and 10-year was down 2.75bps at 59.75bps.



AUD/USD 5y5y seen wider

In a recent research piece, ANZ took a look at the recent development in cross market spreads. It noticed that 10-year ACGB/UST spread has been volatile of late but has generally stayed in around a 15bps range. 5y5y AUD IRS/SOFR spread, on the other hand, has narrowed more definitively over the past couple of weeks and is now sitting at its lowest level since the middle of last year. AUD/USD 5y/5y5y box has flattened by even more over the same period.


The team has expressed its favour about fading the outperformance of long-end AUD rates. Taking early 2020 as an example, if there is a risk-off move, then AUD rates will likely underperform. However, it also thinks AUD rates could underperforms following near-term data flow.


“If banking sector issues prove not to be systemic, markets are likely to price-in a high terminal RBA rate, which may drive some underperformance of AUD rates across the curve,” said ANZ.


ANZ therefore recommended paying AUD/USD 5y5y spread to prepare for a widening move there.



CBA sees higher chance of an April pause

CBA has revised its forecast for the next RBA move and now expects the central bank to pause rather than to hike further when it next meets in a few days’ time. In a research note released today, it predicted 55% chance of a pause and 45% chance of a 25bp hike. “Domestic economy is now showing sufficient signs of slowing and we expect the RBA Board will judge that a pause in the tightening cycle is the appropriate move in April,” said CBA. Indeed, ING has cut its longest-term fixed mortgage rates ahead of the meeting as mortgage stress has reached its highest level in over a decade, and hiking 25bps in April and May would leave around a third of mortgage holders at risk of stress.



New issues

  • New South Wales Treasury Corp has increased the size of the following bond lines:


    • AUD450m to 3%, April 20, 2029 at 44.75bps over ACGBs. The new size is not AUD9.93bn.

    • AUD60m to 3%, March 20, 2028 to bring the new size to AUD9.64bps. Leads are CBA, DB, UBS and priced at ACGBs + 27bps.


  • Toyota Finance Australia has launched 3- and 5-year MTNs with price guidance at +105bps and +125bps area respectively. Leads are ANZ and CBA. The deal is expected to be priced today.


  • Treasury Corp of Victory has tapped the following bond lines:


    • AUD400m to 3%, October 20, 2028 at ACGBs + 53bps. The new size of the line is AUD10.56bn.

    • AUD84.9m to 0.5%, November 20, 2025 to bring the new size to AUD8.67bn. Prices at ACGBs + 14.35bps.