AUD Swaps: Rally extended; Swap rates seen higher in the short-term

Bond chart 30 Jan 2023
The rally in the AUD rates market extended today but activities have been mostly around 10y. Barclays believes a near-term selloff in AUD rates.

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  • Bond futures extend gains

  • Swap rates seen higher in the short-term

  • New issues


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Bond futures extend gains

AUD bond futures extended gains today, as an aftermath of an RBA pause and tracking similar move in the USD rates market on Tuesday.


In overnight trading, US treasury yields slumped after data showing weak job growth. Factory and durable goods order in February also contracted. These prompted renewed expectations that the US Fed might not hike rates aggressive to tame inflation.


In mid-afternoon Sydney trading 3-year bond future was up 3-ticks at 97.17, and the 3s/10s futures curve was 1.5bps steeper at 41bps.



Swap rates seen higher in the short-term

After the RBA, Barclays released a research piece and said the pause was within the team’s expectations, and that ACGB yields/swap rates would rise again in the short-term before consolidating and moving lower from Q4.


Barclays noticed that AUD rates had reacted sharply to weaker macro data and Fed repricing, leaving markets relatively rich and vulnerable in the near future. “A more hawkish than priced RBA is likely to provide the bearish trigger in the short term,” it said in the piece. Additionally, relatively heavier ACGB supply and defensive demand following recent rally should also exert some pressure on term premia. However, weaker inflation/growth data and the end of hiking cycle are likely to fuel a sustained rally in fixed income. In particular, the bank predicted the RBA to start easing in 2024, and so such rally would begin around Q4.


Swappers remained cautious on the day with flows mostly around 10-year. A dealer reported receiving in 10-year at down to below 3.75%, down from previous close of around 3.82%.



New issues

  • New South Wales Treasury Corp increased the size of its existing bond lines as follows:


    • AUD100m to 1.75%, March 20, 2034 line at ACGBs + 63bps. The new size is now AUD5.37bn.

    • AUD150m to 2%, March 8, 2033 at 61.75bps over ACGBs. The new size is now AUD11.42bn.

    • AUD50m to 2% March 20, 2031 to AUD10.15bn. Priced at ACGBs + 60bps.


  • Treasury Corp of Victoria upsized its existing bonds as follows:


    • AUD500m to 1.5%, November 20, 2030 to AUD8.6bn.

    • AUD200m to 5.5%, November 17, 2026 at ACGBs + 54.4bps. The new size is now AUD10.68bn.