AUD Swaps: 2s/5s steepener still attractive; 5-10y bid

Steep ice climb 25 Mar 2021
Losses in the USD rates market have prompted paying interest in the 5-10y area of the AUD curve. 2s/5s IRS steepener is still attractive.

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  • 2s/5s steepener still attractive - ANZ


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2s/5s steepener still attractive - ANZ

AUD bond futures were weaker, following the sharp selloff in US treasuries on Thursday which was in turn driven by a surprise increase in GDP price index which was higher than both the previous quarter and market expectations.


In mid-afternoon Sydney trading 3-year bond future was down 3-ticks at 96.98, and the 3s/10s futures curve was a basis point flatter at 37bps.


ANZ noted in a strategy piece released on Thursday that the futures curve had moved within a narrow range between 35bps and 40bps over the past couple of weeks, but it would be unlikely to break out of this range in the near term. The move was due to the front end still sitting slightly higher than their level from a couple of weeks ago, which means the market has been pricing in a soft-landing scenario where the RBA eases in 2024. However, the team there believes that it should not be treated as a central scenario, and the best way to fade this would be some curve trades that involves seeing 2-year to outperform.


The team at ANZ re-iterated its interest in 2s/5s IRS steepener, and its preference has got stronger especially after the softer-than-expected domestic CPI data.


Flow wise, 10-year saw some decent amount of paying up to almost 6.5bps higher of nearly 3.96% although it was last traded only around 3.91%. 3-year traded in a tight range around 3.465% in the morning before paying eased a tad around mid-day when it traded around 3.25bps higher of 3.4525%.


EFPs were mostly tighter except in 20-year where it was 1.75bps wider at 64.25bps. 3- and 10-year were both down 0.5bp to 42.5bps and 52.25bps respectively, while 5-year was down 1.25bps at 58.75bps.