AUD Swaps: 3-10y bid after jobs data; Short-end flattener closed

• AUD rates sold off as jobs creation surges

• 3s/5s flattener closed as rate cycle near an end – BNP

• 3-10y bid after data; FOMC eyed

• New issues

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AUD rates sold off as jobs creation surges

AUD bond futures moved in a tight range around yesterday’s close in earlier trading before a clear selloff which began after domestic data.

Official data released around mid-day showed that unemployment was surprisingly unchanged at 3.5% in March due to a good amount of new full-time jobs creation. 

Market players have paid a particular attention to the surge in full-time vacancies as it points to a subsequent rise in inflation although data released today also indicated that consumer inflation expectation for April eased from 5% to 4.6%.

To quickly adjust their positions, traders sold off AUD rates. 3-year bond future was down 5-ticks at 97.08 in mid-afternoon Sydney trading, and the 3s/10s futures curve was unchanged at 37bps.

3s/5s flattener closed as rate cycle near an end - BNP

Some market participants, however, attributed the 0.1% difference in unemployment rate vs consensus to the slightly higher participation rate in March, and reckoned it could have been higher than 3.5% if there was no change in participation rate. They believe unemployment will eventually rise amid a relatively faster growth in labour supply. This is in line with what BNP Paribas said in a research piece released prior to the jobs data. The team looked at the accelerating population growth in Australia and concluded that the RBA is likely to hike rates further, but not too much. Indeed, Governor Philip Lowe recently highlighted Australia’s increasing population as a risk to housing supply (and therefore inflation), with the potential for a 2% year-on-year acceleration. “We expect the RBA to hike one more time, unless the Q1 CPI to be released towards the end of April shows a significant slowdown to below 7% (in line with the monthly February 2023 print), from 7.8% in Q4 2022,” it said. BNP has closed its 3s/5s flattener it believes the cycle is coming to an end with about just another hike.

3-10y bid after data; FOMC eyed

Trading in swaps, however, stayed cautious, as most players were still unsure of the near-term market move despite cooling US inflation according to data released in overnight trading. The FOMC statement and US PPI data tonight will shed more light, but since the statement was before recent data it might not reflect the true picture, according to a trader. The source reported paying in 10-year at up to 3.91% before lunch break, and was last seen changing hands 6bps higher of 3.855%. 3-year was offered down a tad before the data, but was then paid up to 5bps higher of around 3.3775% in the afternoon session. EFPs were wider across the curve with 3-year up 0.5bp at 45.75bps, 5-year up 1.5bps at 61.75bps and 10-year up 0.5bp at 69.25bps.