AUSSIE BONDS: ACGB Yields 3-4bps Lower, RBA Cautious On Outlook
Aussie bond futures have held a positive bias in Tuesday trade consistent with gains in US Tsy futures and JGBs, while at the same time the RBA Minutes, from the Dec policy meeting, didn't contain any hawkish surprises. Front end, 3yr futures (YM) are marginally outperforming, up +4bps to 95.795, although we are slightly down from best levels. 10yr futures (XM) are +3.5bps to 95.185. ACGB yields are around 3-4bps lower, with the front end marginally leading in yield terms.
- The RBA Minutes noted that the Board felt it needed more time to assess data to determine how persistent the pickup in inflation is. It was "too early" to know especially given the newness of the monthly CPI. It noted the upside risks to Q4 inflation and the "circumstances" that would drive a hike were also discussed. However, it noted a number of times that it was appropriate to be "cautious".
- Elsewhere, the December Bloomberg survey showed a median upward revision to consensus cash rate forecasts in 2026 as well as H1 GDP growth driven by stronger investment. A lot of forecasters have taken out easing expectations from their projections with some adding tightening.
- RBA tightening expectations are little changed for the Feb 2026 meeting, with market implied pricing giving around a 35% probability to a hike.
- The ACGB 10yr has backed away from a test 4.80% for now. A clean break higher could see the 5% handle targeted, while dips under 4.70% have been supported so far in Dec. For the 3yr upside focus rests around 4.20%.
- The AU-US10yr spread is slightly flatter at +61bps, but remains close to recent highs and continues to reflect risks around the 2026 central bank outlook between the Fed and RBA.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
