AUD Swaps: Swaps given as RBA pauses; Banks split on next RBA move

• Bond futures rally as RBA pauses

• 3y given; Good 10y offers again after pit

• New issues

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Bond futures rally as RBA pauses

After 10 hikes, the RBA has become the first major central bank to pause when the board concluded this month’s monetary policy meeting earlier today, as the range of recent data suggests that inflation in the country has peaked and the bank would wait to see the impact of previous increases. The benchmark rate has been kept unchanged at 3.6% but the board flagged that further tightening of policy may well be needed. The RBA stressed that the domestic banking system was strong and well-capitalised although there would be additional headwind to global economy.

Prior to the decision, there was a significant share of market participants who had forecast a pause. The decision nevertheless sparked a sharp rally in bond futures with 3-year leading the move. 3-year was up by 13-ticks intraday before being marked 10-ticks higher at 97.15 in late-afternoon Sydney trading. The 3s/10s futures curve was 2.5bps steeper at 39.5bps.

BofA believes that the RBA may have ended its hiking cycle from here as there is a higher bar for the RBA to resume hikes. “Given the RBA’s reaction function in favour of avoiding a recession, the fact that the central bank paused today underscores their concerns over the growth outlook, and the lagged effects of the monetary tightening,” it said after the RBA.

Westpac, however, was open to more tightening as the decision to hold interest rate steady “this month” implied that it was a month-to-month proposition rather than an end. The bank forecast the 1Q CPI data to be a deciding factor for the next move, but reckoned “only much stronger data outcomes would reverse the current buy dips tactical approached”. Therefore, the rally in ACGBs might not extend significantly from this point.

Deutsche Bank echoed the view of Westpac and said the upcoming inflation data is now “more important than normal”. ANZ, on the other hand, said RBA Governor Philip Lowe’s speech tomorrow would be the first critical information that the market should watch out, but noted the shift in language such as further tightening “will be needed” to “may well be needed” as it suggested that the board was careful and tried to avoid perception that the tightening cycle has ended.

3y given; Good 10y offers again after pit

Swaps were offered after the RBA. 3-year, for example, traded down to 3.325% after domestic pit trading, or as low as 3.3425% soon after the decision. These compared to previous close of around 3.44%. Trading in 10-year has become busy since mid-day. It traded mostly around 3.815% in the morning session. Receiving turned less aggressive in the afternoon when it traded in a tight range around 3.85%. After pit, 10-year traded all the way down to 3.72%, down from Monday’s close of 3.9%.

EFPs were mostly tighter with 3-year down 0.25bp at 47.5bps, 5-year down marginally to just above 65bps, 10-year down a basis point at 56.5bps.

New issues

• Worley Financial Services Pty Ltd raised AUD350m via selling 5.95% October 13, 2028 callables with call at par any time before August, 2028, and coupon will be stepped up by 25bps if failed to meet sustainability performance target. Priced at 250bps over ASWs.