AUD Swaps: CPI shock; Swaps given after earlier bid

Rebound 23 Jun 2020
Second-quarter inflation in Australia was slower than expected, catching some players off-guard and thus receiving in swaps after earlier bid.

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  • Bond futures rebound as inflation growth weaker than expected

  • Swaps offered after earlier bid


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Bond futures rebound as inflation growth weaker than expected

Inflation in Australia grew slower than economists had expected, driving a rally in the AUD rates market.


Official data released today showed that inflation was 5.4% in June, down from 5.5% in May and matching the market’s expectation. However, it grew by 6% year-on-year in the second quarter, down sharply from 7% in the first quarter and below consensus of 6.2%. Compared to the first quarter, inflation was up by 0.8% in the second quarter, after 1.4% of growth in 1Q and forecast of 1% of growth.


AUD bond futures were a few ticks lower in early-morning domestic trading as they tracked the move in the USD rates market in overnight trading. Slower-than-expected inflation growth then drove a rally so that 3-year bond future was up by 11-ticks soon after the data. It was up by 7-ticks at 96.11 at mid-day, and the 3s/10s futures curve was 5bps steeper at 11.5bps.



Swaps offered after earlier bid

Swappers have been caught off-guard too. 10-year swaps traded 5.5bps higher at the open, but changed hands in a tight range around 4.4475% after the data. These compared to previous close of around 4.4725%. The reaction at the front-end has been wilder. However, a dealer said the lack of real trade flow also contributed to a bigger swing in prices. 3-year was paid up 2.5bps to 4.325% in the morning, but was quickly offered down to 4.2325% after the CPI shock.


5-year EFP widened out by 1.25bps to 41.5bps, and 3- and 10-year EFPs were 0.75bp tighter at 34bps and 44.5bps respectively.