AUD Swaps: 5- and 10-year bid ahead of CPI; Short bias before FOMC

Landing airbags inflated 13 Jun 2022
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5- and 10-year AUD swaps were bid ahead of domestic CPI although the market generally expects it to cool further. ANZ has a short bias ahead of FOMC.

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  • June inflation to cool further

  • 5- and 10-year bid ahead of data; 2-way 7y flow

 

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June inflation to cool further

3-year AUD bond future was flat to a tad weaker today, tracking but slightly outperforming the selloff in the USD rates market in overnight trading. 10-year managed to erase earlier losses around late-morning domestic trading, and was up by 2-ticks at 96.03 at mid-day. The 3s/10s futures curve flatted out by 2bps to 6bps.

 

Trading in AUD rates stayed subdued ahead of the domestic June inflation data which will be released tomorrow. Economists currently expect it to cool from 5.6% in May to 5.4%, after a rebound in April. Inflation in the second quarter is expected to fall from 7% to 6.2%. Anything higher than the consensus would lead to a selloff in AUD rates as players would scramble to price in further aggressive RBA tightening.

 

ANZ wrote in a research piece released on Monday that it expected inflation to be falling in line with, or slightly faster than, the RBA’s May Statement of Monetary Policy (SOMP). Numbers close to its forecasts would support an extended pause in rate rises, including no move in August. The bank also has a slight short bias for rates going into FOMC this week. “Continued resilience of economic data so far could support a hawkish tone which should further unwind the easing priced into the USD curve,” it said in the piece.

 

 

5- and 10-year bid ahead of data; 2-way 7y flow

Earlier weakness in the cash bond market saw a couple of paying in 10-year. A dealer reported paying there at a tad below 4.47%, up from previous close of around 4.45%.

 

Traders then shifted their interest to 7-year when it traded in a tight range around yesterday’s close of 4.375% into lunch break.

 

Slightly down the curve, 5-year traded in several clips around mid-day at between 4.335% and 4.3375%, compared to those traded around 4.33% near market close on Monday.

 

At time of writing swap rates were 0.5-1bp lower than domestic close on Monday, and 3s/10s swaps were 0.5bp flatter at 17bps.

 

EFPs were generally marginally wider. 3-year was marked a tad above 35.5bps, 10-year just below 46.5bps. 5-year, on the other hand, was marginally narrower at just above 41bps.

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