AUD Swaps: Box steeper; Light swaps bid; 10y cross market spread closed

• Stay long AUD rates on a cross market basis – ANZ

• Light 2-10y bid; EFPs mostly tighter

• BNP stops 10y USD-AUD spread trade

• New issues – Toronto-Dominion Bank 3y covered bonds

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Stay long AUD rates on a cross market basis - ANZ

10-year AUD bond future has been slightly underperforming 3-year on the selloff, contrasting the move in the USD rates market on Friday.

2- to 5-year treasury yields rose on Friday and flattened out 2s/10s and  5s/30s.

At mid-day 10-year bond future was down 8.5-ticks at 95.835, and the 3s/10s futures curve was 2bps steeper at 32bps.

Dealers said data wise, it would be a busy and intense week this week. Domestically there would be jobs data for August. US inflation data will be released on Wednesday while China may cut its 1-year rate the second time since July, but such move would be affected by industrial production and retail sales data released on the same day. ECB decision is due this week too.

ANZ has a bias to long AUD rates on a cross-market basis this week due to its view that markets will have a larger reaction to soft labour market data than to strong data. “This would potentially confirm a turning point in labour market conditions. The risks around the data though are by no means definitive,” it said in a research piece released earlier today. The bank therefore prefers to hold the trade on a cross-market basis rather than outright longs.

Light 2-10y bid; EFPs mostly tighter

Trading in AUD swaps has been very subdued at the beginning of this data intensive week. A market participant reported sporadic and rather light trades across the curve with small-sized 10-year flow at 5bps higher of 4.47%. 2-year saw relatively more activities. It went through 4.15%-4.155% in the morning but was last seen traded 4.1675%, up from previous close of 4.14%. 5-year interest emerged around mid-day when it traded through 5bps higher of 4.25%.

EFPs were mostly tighter but 5-year was 0.5bp wider at 39.75bps. 3- and 10-year were 1.25bps and 0.5bps tighter at 23.25bps and 34.25bps respectively.

The 3s/10s EFP box steepened up by 0.75bp to 10.75bps.

BNP stops 10y USD-AUD spread trade

Elsewhere, BNP Paribas recommended to stop out paid 10y AUD IRS versus USD SOFR trade that the bank entered on 30 August, as the spread has tightened to its top out level of 50bps.

“US yield once looked to peak at the end of August but has recovered, as 10y UST yields returned to 4.3% after strong service ISM on 6 September. While the spread is even more extreme relative to the spread of Economic Surprise Index, the negative sentiment over China economy does not seem to have recovered much, based on the continued weakness of CNY,” the team explained of its decision.

New issues – Toronto-Dominion Bank 3y covered bonds

• Chorus Ltd issued AUD300m in 5.974% September 18, 2030 callables with call at par from July 2030. Priced at 173bps over ASWs.

   

• Macquarie Bank sold AUD1.75bn worth of September 14, 2026 bonds as follows:

   

  • AUD400m, 4.946%.

  • AUD1.35bn FRNs paying AUD 3M BBSW + 85bps.

   

• Pepper Money Ltd issued AUD40m in September 15, 2027 FRNs that pay AUD 3M BBSW + 675bps with quarterly call at par from September 2025.

   

• Toronto-Dominion Bank sold the following September 15, 2028  covered bonds:

   

  • AUD1.3bn, FRNs paying AUD 3M BBSW + 97bps.

  • AUD700m, 4.95%.

   

• Toyota Corp raised AUD800m via selling the following bonds:

   

  • AUD250m, 5.2%, September 15, 2028.

  • AUD175m, September 15, 2026 paying AUD 3M BBSW + 100bps.

  • AUD375m, 5%, September 2026.

     

    Leads are ANZ and CBA.