AUSSIE BONDS: AOFM Weekly Issuance Slate

NAB note that “yesterday’s Board Minutes and RBA Deputy Governor Bullock’s Speech reveal that the Board is likely to continue to raise rates relatively rapidly in August, with an increase of at least 50bps likely. The June labour force data suggest the labour market was even tighter than the RBA foreshadowed and will require a further downward revision to unemployment forecasts in the August Statement on Monetary Policy. Next week’s CPI will likely reveal another very large lift in prices – something that the NAB Business Survey reveals is ongoing – also likely to require a further upgrade in inflation forecasts in August. Together they may prompt the RBA to consider a larger rate rise in August to return to a neutral setting slightly more quickly. NAB continues to expect further interest rate rises in the months ahead. Our current prediction is +50bps in August and +25bps in September, November, and February, but the risk is rising that the RBA sees the need to get interest rates to the broadly neutral 2.6% level we see early next year, earlier than we forecast.”

Goldman Sachs note that “Governor Phil Lowe flagged the RBA was not on a "pre-set path" for the cash rate but reiterated the neutral short-term rate was likely to be "at least" 2.5%, with upside risks from an upward shift in inflation expectations. Governor Lowe repeatedly highlighted that the RBA was committed to keeping medium-term inflation expectations anchored around 2-3%, with "further" rate hikes needed "over the months ahead" to cool aggregate demand. While a close call, we continue to expect the RBA to increase the cash rate +75bp in August and +50bp in September - reaching a level of 2.6% broadly consistent with 'neutral' - before slowing the pace of hikes to +25bp in Oct/Nov/Dec to achieve a modestly contractionary rate of 3.35% by year end. This path reflects our above-consensus inflation forecasts for 2022.”

The latest round of ACGB May-32 supply went well, with the weighted average yield printing 0.78bp through prevailing mids (per Yieldbroker), and the cover ratio coming in at 3.0025x, above the prior six-auction average of 2.7426x (albeit with a slightly lower amount of ACGBs on offer in this auction). The result builds on a recent run of strong ACGB auction results, with the earlier-flagged, easily-digestible DV01 and benchmark 10-Year status of the line facilitating smooth takedown.