AUD Swaps: Banks revise terminal rate; Futures curve at historical low; 10y bid

Flat tarmac 21 Jun 2021
Several banks have revised their RBA terminal rate forecast, and ANZ recommended to hold onto a front-end flattener. KEXIM is planning a new Kanga.

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  • Hold onto 1y/1y1y flattener – ANZ

  • GS, BNPP revise up terminal RBA rate

  • Futures curve flattens to historical low

  • 10y bid emerges; EFPs mixed

  • New issues – KEXIM plans new Kangaroo bonds


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Hold onto 1y/1y1y flattener - ANZ

Several banks have updated their RBA outlook following the surprising interest rate hike on Tuesday.


ANZ believes that the market will move towards thinking that two more hikes are more likely than none, which should raise pricing, even if a terminal rate of 4.6% is not fully priced. The bank said it did not have great confidence in how exactly the market would price additional tightening across RBA meeting dates, but the peak would likely be priced before year-end. This also suggests that front-end curves have further room to flatten, following substantial selloff over the past few weeks. ANZ therefore recommended in a strategy piece released earlier today to hold onto its prior 1y/1y1y flattener. The team also suspected some convergence between the AUD and USD curve when the RBA becomes more concerned about the inflation outlook and terminal pricing lifts. This would support its recommended trade.



GS, BNPP revise up terminal RBA rate

Elsewhere, Goldman Sachs has revised up its RBA terminal rate forecast from 4.35% to 4.85%. It now expects three more 25bp hikes in July, August and September as the risks are now “skewed to a more elongated tightening cycle, for example a slower pace of hiking through 2H2003.”


BNP Paribas, on the other hand, expects one more hike in August, and that the RBA would start to cut before the Fed in the first quarter of 2024. “We think the need and the timing for future hikes will depend on how expectations evolve and the downside for growth. With global central banks turning more hawkish due to inflation, we think the RBA will also see the need to hike more, as long as growth does not drop materially,” it said in a research piece released on Tuesday.



Futures curve flattens to historical low

The AUD rates market continued its selloff today, despite weaker-than-expected data.


Official data released earlier today showed that GDP in the first quarter was up 0.2% quarter-on-quarter, down from 0.6% in the previous period and below expectations of 0.2%. On an annual basis, it grew by 2.3%, compared to 2.6% in the fourth quarter and economists’ forecast of 2.4%.


3-year AUD bond future was down 5-ticks at 96.31 in mid-afternoon Sydney trading. The aggressive selloff at the short-end saw 3s/10s futures curve flattening by another 4.5bps to its fresh low of 12.5bps, or the flattest since October 2010 when the market was getting ready for a 25bp hike from 4.5% to 4.75%.



10y bid emerges; EFPs mixed

In swaps 2-year was paid up 4.5bps to 4.175% before mid-day. 5-year traded up to 4.535% in the afternoon session, compared to those traded around 4.48% in overnight trading. 10-year has been relatively busier with flows beginning to emerge in mid-morning domestic trading. It traded mostly in a tight range around 4.265% but there were also activities up to 4.27% near market close. These compared to those traded down to below 4.2% on the previous day.


EFPs were mixed. 3- and 5-year were down 0.5bp and 2bp at 32bps at 37bps respectively. 10-year was unchanged at just above 44.25bps.



New issues – KEXIM plans new Kangaroo bonds

  • CPPIB Capital Inc has increased the size of its existing 4.2%, May 2, 2028 bonds by AUD350m to AUD1.6bn. Priced at ACGBs + 109.25bps and leads are CBA, DB and UBS.


  • KEXIM has mandated ANZ, Mizuho and Nomura for a possible 3- and/or 5-year Kangaroo bond deal.


  • NAB raised USD1.85bn via selling the following bonds:


    • USD850m, 5.2%, May 13, 2025 at USTs + 70bps.

    • USD1bn, 4.9%, June 13, 2028 at USTs + 110bps.


  • New South Wales Treasury Corp has added AUD200m to its existing 3%, May 20, 2027 bond line at ACGBs + 35bps. The new size is now AUD9.21bn and leads are CBA, DB and UBS.


  • Treasury Corp of Victoria has upsized its existing 3%, October 20, 2028 bond line by AUD35m to AUD10.67bn. Priced at ACGBs + 53bp.