AUD Swaps: RBA to stand pat; 3s/10s box flatter again

• RBA to stand pat; 3s/10s box flatter again

Click here for SDR AUD IRS trades

RBA to stand pat; 3s/10s box flatter again

AUD bond futures were firmer at the open, tracking the gains in the USD rates market on Friday which was in turn backed by demand for rates after further slump in the share price of First Republic Bank.

3- and 10-year bond futures were up by 4- and 6-ticks respectively at the open.

Dealers said the rally in domestic rates market was also driven by concerns over exports demand from China. The latest PMI data there has missed forecast, triggering worries over a slower-than-expected economic recovery there and thus weaker-than-expected imports demand.

The bond futures then fell a tad after data that showed April inflation gauge in Austarlia rose by 6.1% year-on-year, compared to 5.7% in May. In mid-afternoon Sydney trading 3- and 10-year bond futures were both down a tick at 97.01 and 96.65 respectively, leaving the 3s/10s futures curve unchanged at 36bps.

The key event in the Australian market this week is the RBA meeting that will conclude tomorrow. ANZ re-iterated that it was not expecting a hike. It noted that the Minutes from the April Board meeting suggested a willingness to hike, but last week’s Q1 CPI reduced the likelihood of this occurring. Nevertheless, it believes that a speech from Lowe and updated forecasts in the Statement on Monetary Policy would be considerable communication to digest. Amongst this would be the RBA’s inflation forecasts and whether it still sees inflation getting to target by 2025.

Players of course have been cautious ahead of the RBA even though there aren’t any significant split views on the upcoming decision. A dealer reported relatively more activities in 10-year where it was traded mostly between 3.845% and 3.865%, up from previous close of around 3.8175%. 3-year traded briefly before lunch break at 3-4bps higher of between 3.395% and 3.405.  

EFPs were mostly tighter except at the short-end. 3-year was up 0.75bp at 55.25bps, 5-year down 1.25bps at 58bps and 10-year down 0.75bp at 52.5bps. The 3s/10s EFP box flattened out again, after making an upside break above 10bps on Friday. It was marked 1.75bps flatter at 9.25bps at time of writing.