AUD Swaps: Bid despite tighter surplus; Cross market idea; 3-stage EFP move

• The three stages of EFPs - ANZ

• Cross market idea: AUD 2y1y vs SOFR 2y1y

• 10y bid despite narrower trade surplus

• New issues

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The three stages of EFPs - ANZ

ANZ noted in a strategy piece released on Wednesday that as markets caught up to the relative outperformance of the US economy, 10-year ACGB/UST spread has narrowed over the past couple of weeks, extending the divergence between cross-market and bond/OIS spreads that started in August .

The team reckoned if there is a QT announcement in the next few months, this would result in an improvement in correlation between ACGBs cheapening to both OIS and UST.

As with EFP trades, ANZ believes that it’s better to be tactical about 10y ACGB/UST cross-market spread wideners, closer to future RBA meetings. In essence, ANZ expects three stages to how it is thinking about trading EFPs in the rest of the year:

• Near-term: bias to be paid, unwinding recent moves.

• Into October and November RBA meetings: receive to position for risk of QT announcement.

• After these meetings: pay to position for additional bank buying of bonds and reduction in AOFM issuance task.

Cross market idea: AUD 2y1y vs SOFR 2y1y

ANZ noted further that the 2y1y point on the curve stands out as being cheap on a relative value basis: Both the AUD 1y1y/2y1y curve and 1y1y/2y1y/3y1y fly are high compared to the USD equivalents over the past few months. “This pares well with our soft preference to be long AUD rates into next week’s data. And it also has the kicker of benefiting from any further strength in US data,” it said in the piece. The team therefore recommended to receive AUD 2y1y IRS versus SOFR 2y1y at 16bps and target it to fall to 0bp.

10y bid despite narrower trade surplus

Short-dated AUD swaps have been leading a selloff today, tracking similar move in the USD rates market on Wednesday which was in turn driven by renewed expectations about further US Fed tightening after strong ISM data. The selloff in AUD rates was also despite of smaller-than-expected trade surplus.

Official data released earlier today showed that Australis logged AUD8.039bn of trade surplus in July, down from AUD11.321bn in June and below forecast of AUD10bn. The move was due to the 3% month-on-month growth in imports, after 4% of contraction in the previous period. Exports were down 2% on a monthly basis, similar to the move in June.

In mid-afternoon Sydney trading 3-year bond future was down 6-ticks at 96.15, and the 3s/10s futures curve was 2bps flatter at 31.5bps.

In swaps, there has not been any aggressive activities at the short-end. A trader reported paying in 10-year in a tight range around 4.4925% throughout the day, up about 3bps from previous close.

EFPs were mixed. 3-year was up 0.5bp at 22.75bps, 5-year down 0.6bp at 38.75bps and 10-year little changed at 33bps.

New issues

• BNG Bank NV issued AUD225m in 5%, March 13, 2034 Kangaroo bonds.

   

• Mizuho Bank Sydney branch raised AUD1bn via selling September 14, 2026 FRNs that pay AUD 3M BBSW + 85bps.