AUD Swaps: 1y1y too rich; 1y/2y1y seen flatter; Jobless rate unchanged

Rolled flat 21 Jun 2021
AUD bond futures were firmer despite no improvement in jobless rate. 1y1y is too rich and 1y/2y1y seen flatter.

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  • New part-time jobs keep unemployment unchanged

  • 1y1y too rich; 1y/2y1y seen flatter


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New part-time jobs keep unemployment unchanged

After a surprise rise in July, domestic unemployment was unchanged 3.7% in August, meeting economists’ expectations. However, the data print was driven mainly by a sharp increase in new part-time jobs. Full-time employment, after losing 18.7K jobs in July, added 2.8K in August. Consumer expectation for September was up 4.6%, down from 4.9% in the previous period.


The market interpreted this set of data, together with US inflation mostly matching expectations, as signs of no policy tightening in the US and Australia in the near future.


The AUD rates market therefore rallied, following similar move in the USD market on Wednesday. In mid-afternoon Sydney trading 3-year bond future was up 3-ticks at 96.18, and the 3s/10s futures curve was 2bps flatter at 27.5bps.


Trading in swaps stayed calm. There were some sporadic receiving in 10-year between 4.43% and 4.47% throughout the day, down from previous close of about 4.485%. 3-year traded mostly in the morning session and in a tight range of flat to 0.5bp lower of 4.075% and 4.08%


EFPs were mixed. 3-year was up 2.75bps at 25.5bps, 5-year up 1.5bps at 40bps and 10-year down almost 0.5bp at 33.5bps.



1y1y too rich; 1y/2y1y seen flatter

ANZ noticed that AUD rates have sold off beyond the 2-year part of the curve over the past couple of weeks. The bank mentioned in a strategy piece released earlier today that there would be some risk for the very front-end of the curve to sell off due to the recent strength in the data, driving a flatter 1y/2y1y curve. However, ANZ prefers to express this as an outright short more precisely captures the view, since the 1y/2y1y curve will be more prone to moving with USD rates.


Furthermore, the 1y1y point of the AUD curve looks particularly rich versus USD on a cross-market basis. The team, however, said it would avoid fading this given that “the relative shape of the AUD and USD curves means that there could be more scope for 1y1y SOFR to underperform….as markets remove more cuts from the Fed profile,” according to ANZ.