AUD Swaps: Futures curve inverts, front-end bid after BOE surprise

Chart line down Oct 2022
The surprising 50bp BOE hike has prompted paying in front-end AUD swaps and underperformance in 3y bond future. The futures curve is now inverted.

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  • Futures curve inverts after BOE surprise

  • Front-end bid; Domestic CPI eyed


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Futures curve inverts after BOE surprise

The selloff in the US and European fixed income market in overnight trading has prompted a similar move in the Australian market.


On Thursday, US treasury yields were higher after US Fed Powell said the US may need one or two more hikes this year as recession risks have become lower. The central bank in England, on the other hand, caught the market off-guard by delivering a 50bp interest rate hike.


3-year bond future has been leading the selloff in Australia today. It was down 9-ticks at 95.99 in mid-afternoon Sydney trading, and the 3s/10s futures curve was down 6.5bps to its fresh low and was a basis point inverted.



Front-end bid; Domestic CPI eyed

Dealers said the surprise from the central banks has put players on the sidelines. They are now assessing whether the RBA would follow and tighten more aggressively when the board meets again. “With lower unemployment already on the table we are now watching the inflation data next week as the RBA would be very data dependent,” one market participant said. Currently, consensus is for inflation to cool from 6.8% in April to 6% in May.


The front-end of the swap curve has shown stronger reaction to the central bank news with some strong paying after lunch break. 2-year traded up 9bps higher of 4.54% before last seen changing hands at 4.53%. 3-year traded briefly at 4.385% in early afternoon domestic trading, up from previous close of 4.295%.


Paying at the belly has been less aggressive. 5-year, for example, traded 6bps higher of 4.385% intraday. 7-year traded up to 4.4075% before lunch break, compared to those traded 4.345% in overnight trading. 10-year traded in several clips in the afternoon session, with paying at 4.47% seen around mid-day, or up from those traded around 4.38% near market close on Thursday.


EFPs were mixed. 3-year was up 0.5bp at 34.75bps, 5-year down 1.25bps at 37.25bps and 10-year up 0.5bp at 44bps.