AUD Swaps: Early 10y bid; Pay short OIS to prepare for stronger data

Australian Coin
Strong US retail sales data has prompted light paying in 10y AUD swaps in earlier trading. ANZ favours paying short OIS to prepare for stronger data.

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  • Pay short OIS to prepare for stronger data - ANZ

  • 10y bid fades after lunch break; EFPs mixed

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Pay short OIS to prepare for stronger data - ANZ

Risk sentiment has turned a corner since stronger-than-expected US retail sales data and hawkish comments from US Fed officials on Friday. This would likely support higher rates in the near-term, according to the strategy piece by ANZ released this morning. The team reckoned any additional solid data should increase terminal pricing for the Fed and push out expectations of cuts, and 2s/10s USTs would flatten as a result. In the domestic market, ANZ believes that last week’s strong jobs data will not be enough to move the dial on the RBA’s May decision. “For May to be a more definitive risk of a hike, Q1 trimmed mean inflation would need to exceed our forecasts,” it said. ANZ therefore thinks paying shorter OIS dates offers attractive risk/reward, to position for stronger data.


AUD bond futures were weaker and the rates curve made an upward shift, tracking the move in the USD rates market on Friday. 3- and 10-year bond futures were both 6-ticks lower at 97.02 and 96.62 respectively, and the 3s/10s futures curve was unchanged at 40bps.



10y bid fades after lunch break; EFPs mixed

Swap trading has been very quiet on the day with mostly paying in 10-year. A dealer reported bid-side flow there at up to 8.75bps higher of 3.9475% in the morning session. Paying turned less aggressive after lunch break and it was then traded in a tight range around 3.915%. 5-year traded briefly before lunch break through 3.61%, or up about 8bps from previous close.


EFPs were mixed with 3-year up 0.5bp at 45.75, 5-year down 0.75bp at 61.75bps and 10-year up marginally at just above 54.5bps.



New issues

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