AUD Swaps: 3-10y bid after US jobs data; Futures curve flatter

• Light 3-10y bid around mid-day

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Light 3-10y bid around mid-day

AUD bond futures were weaker today, on the back of dampened demand for safe-haven assets following lower-than-expected unemployment in the US in April. They trimmed losses after slightly weaker-than-expected NAB business condition for April.

3-year bond future was down by 14-ticks in the morning before closing the day 10-ticks lower at 96.96. The 3s/10s futures curve was 3.5bps flatter at 34.5bps.

In a research piece released earlier today, ANZ noticed that last week’s US payrolls data demonstrated the ongoing divergence between pessimism around the economic outlook and strength in actual data. The bank expressed its interest in paying AUD IRS following last week’s rally in USD rates and steepening in the curve. However, they have yet to decide on any trade as headlines around regional US banks are likely to dominate in the near future.

Domestically, the RBA surprised markets by hiking with a hawkish tone from the Governor which collectively suggested that the inflation forecast period would be the maximum tolerable time in which to get inflation back to target. ANZ therefore believes that pricing on short-end rates could move quite quickly if inflation data surprises.

Swap trading has been mostly around 3- and 10-year on the day with more noticeable activities between late-morning domestic trading and mid-day. A dealer reported paying in 10-year in a tight range around 3.915% and 3.92%, up from previous close of 3.88%. 3-year traded up to 20bps higher of 3.49% in earlier trading before easing to trade around 3.44% near mid-day.

EFPs were tighter across the curve with 3- and 5-year down 1.75bps at 41.25bps and 55.75bps respectively. 10-year was down 1.25bps at 53.25bps.