AUD Swaps: Massive flattening on RBA shock; 3y swap rate spikes

Chart line down Oct 2022
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RBA shocked the market by delivering a 25bp hike, triggering a massive bear-flattening of the curve. 3-year swaps traded more than 20bps higher.

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  • Curve bear-flattens massively after RBA shock

  • 10y forward trades; 3y swap rate spikes

  • New issues

 

Click here for SDR AUD IRS trades

 

Curve bear-flattens massively after RBA shock

After a brief pause in April, the RBA shocked the market by hiking the benchmark interest rate by 25bps to 3.85% when it concluded this month’s monetary policy meeting. It is also the highest point in 11 years. The central bank supported its own decision by saying that inflation in the country is moderating but still too high while the labour market is still tight, and that further tightening might be needed. The economic forecast is largely unchanged except that it lowered the GDP growth this year from 1.5% to 1.25%.

 

A couple of dealers agreed that the country is now likely to be at the peak of the monetary policy tightening cycle, as further aggressive interest rate hike would pressure borrowers especially those who secured mortgages in the past two years. “Inflation is cooling but the central bank likely wants to see a steeper fall before executing a pause again,” one market participant said.

 

AUD bond futures were weaker in the morning, tracking the losses in the USD rates market where players sold off ahead of the FOMC meeting. The market widely expects the US Fed to raise interest rate by another 25bps, and pricing in about 30% chance of another 25bp hike next month.

 

3- and 10-year bond futures were down by 8- and 8.5-ticks soon after market open before trimming losses in mid-morning domestic trading. They then slumped impulsively following the RBA shock. 3-year plummeted by 25-ticks almost immediately after the announcement as players scrambled to unwind their prior bet on an RBA pause. The 3s/10s futures curve bear-flattened by a massive 9bps to 27.5bps.

 

 

10y forward trades; 3y swap rate spikes

Outright swap trading has not been busy, even after the RBA. A dealer reported earlier paying in 10-year between 3.95% and 3.955%. It then traded briefly at 12bps higher of 3.995% after the interest rate hike. There has been, however, some busy 1m forward trades in 10-year where it went through up to 4.5% near market close. 3-year traded in a tight range around 3.485% in the morning session before last seen changing hands 22.5bps higher of 3.65%.

 

EFPs were mixed with 3-year up 2bps at 45bps, 5-year down 2.5bps at 55.5bps and 10-year up 1.25bps at 61.75bps. The 3s/10s EFP box flattened out by a basis point to 8.25bps.

 

 

New issues

  • China Everbright Bank Sydney branch added AUD20m to its existing  March 3, 2025 FRNs to bring the new size to AUD90m. The deal pays AUD 3M BBSW + 93bps.

     

  • Queensland Treasury Corp added AUD175m to its 1.75%, July 20, 2034 bonds to bring the new size to AUD5.26bn.

     

  • New South Wales Treasury Corp upsized its existing bonds as follows:

     

    • AUD50m to 1.75% March 20, 2034 to AUD5.77bn. Priced at ACGBs + 64bps.

    • AUD125m to 3.5%, November 20, 2037 to AUD1.7bn at ACGBs + 51bps. Lead is UBS.

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