AUD Swaps: 3-10y bid ahead of US Fed; 10s/30s ACGBs/IRS box idea

• 10s/30s ACGBs/IRS box seen steepener

• 3-10y bid ahead of US Fed

• New issues

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10s/30s ACGBs/IRS box seen steepener

The AUD rates market has followed the USD rates market cheaper, as the market continued to price in a US Fed hike although the latest CPI print was slightly below expectations.

ANZ believes the Fed has more room to hike though it is unsure it would be tomorrow or in July, is unclear. In a research piece released today ANZ noticed that activity was still not slowing sufficiently to support a shift away from hawkish Fed messaging and so there would be further selling of USD rates. The team also noted recent sharp flattening of 3s/10s ACGBs in response to the RBA’s hike so that the slope is now sitting at its flattest level in over a decade. “Unless terminal rate pricing takes another leg higher, we doubt the curve will flatten much further. If more cuts are priced into 2024 and 2025 –as we expect –then this will put some steepening pressure on 3s10s,” it said in the piece. The flattening in the AUD curve also exceeded that of the USD curve, flattening the AUD/USD IRS 10s30s box.

ANZ thinks there is a clearer risk for USD rates to selloff in the near-term than AUD rates, especially after softer-than-expected NAB business survey data domestically. The AUD 10s/30s curve could therefore steepen relative to the USD 10s/30s curve. An easier way to express this view in the near-term would be an outright USD shorts or via cross-market trades. As such, the team recommended a 10s/30s ACGBs/IRS box steepeners and expected this trade to work as long as there is no large narrowing in 10y EFPs in the near-term.

3-10y bid ahead of US Fed

In mid-afternoon Sydney trading 3-year bond future was down 9.5-ticks at 96.07, and the 3s/10s futures curve flattened to its fresh historical low of 7bps, down 4bps from previous close.

Flow wise, 10-year swaps have been bid with stronger paying interest in the morning session when it traded through 4.4325%. Paying eased a tad after lunch break and it was last seen changing hands around 4.75bps higher of 4.4275%.

3-year has been relatively less busy, and it traded mostly around 4.205% on the day, up about 6bps from yesterday’s close.

EFPs were wider at the belly but tighter otherwise. Key EFPs were marked: 3-year down a tad at 29.75bps, 5-year up 2.5bps at 39bps, 10-year down 0.5bp at 44bps.

New issues

• BNG Bank has increased the size of its existing 2.45%, July 21, 2032 bonds by AUD30m to AUD945m.