AUSSIE BONDS: AU-US 10Y Diff < 0 As Oil Drives US Yields Sharply Higher

ACGBs (YM -2.5 & XM -2.0) are weaker after US tsys finished flat to 4bps richer on Tuesday but off session best following a rise in the oil price. 

• Crude trended lower before rallying during the US session reflecting mixed news flow and repositioning. Houthi attacks on Saudi Arabia continued, US is still helping tankers through Hormuz, Iran is preparing for strikes following the mid-terms and Saudi is looking to further bypass the Strait.
• Fed Goolsbee said Inflation tied to the AI boom is "jumping out of its lane" and starting to push up prices in unrelated corners of the economy. "Prices are going up in spaces that are not just components in data centres and the directly adjacent industries."
• Cash ACGBs are 2-3bps cheaper with the AU-US 10-year yield differential at +10bps.
• The bills strip pricing is -1 to -2 across contracts.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 32% for November to 82% by February 2027 and 113% by June 2027.  
• Today, the local calendar will see the Westpac Leading Index.
• The AOFM plans to sell A$700mn of the 4.25% 21 March 2036 bond today and A$1000mn of the 3.25% 21 April 2029 bond on Friday.

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Spot USD/CNH tracks near 6.6930 in early Wednesday trade, after posting little change for Tuesday's session. This underperformed broader USD softness as the BBDXY index lost nearly 0.20% in Tuesday trade, as back end UST yields edged down (albeit finishing up from earlier lows as crude prices climbed in US trade). Spot USD/CNY finished up at 6.6924, while the CNY CFETS basket index tracker firmed a little further to 103.65. The basket tracker has now risen in the past 8 onshore trading sessions. This may falter if the USD can't sustain higher levels though, we have the US CPI print later on Wednesday. 

• USD/CNH technicals are little changed, with Tuesday lows right on Monday lows at 6.6906. There still appears to be some support ahead of 6.6900, but upticks remain equally modest. The late Sep/early Oct bounce in the pair ran out of steam between the 20 and 50-day EMA resistance points. These levels rest at 6.7035/40 and 6.7190 respectively. EUR/CNH is up from recent lows, last 7.4945/50 but remains entrenched in a downtrend with Oct 2 highs at 7.5643 a potential resistance point.
• Before the US CPI print we have China Sep inflation data, as well as Sep trade figures. The market consensus expects CPI y/y to pick up to 1.0% from 0.8% prior. The PPI is projected at 4.4%y/y (from 3.8% in Aug). Trade figures are seen little changed, exports at 25.7%y/y, while the trade surplus is projected at $117.78bn. Via BBG, Goldman Sachs notes: "China’s currency is undervalued by around 20% to 25%, an estimate the bank’s global head of foreign exchange, rates and emerging markets strategy research calls “conservative.” He added that the nation’s swelling trade surplus strengthens the case for appreciation."
• Implied vols are very benign, tracking sideways to lower for most tenors in Oct to date. The 1 month last 1.70%, suggesting any break sub 6.6900 is unlikely to see a sharp pick up in the pace of CNH gains. 

NZGBs are 1bp cheaper after US tsys finished Tuesday’s session off best levels following a rise in the oil price. US tsys did, however, with yields flat to 4bps lower.

• "Saudi Arabia intercepted more missiles and drones launched by the Houthis, as the conflict showed few signs of subsiding. The Saudi-led coalition later warned people near the Sanaa oil site to leave the area "for their safety." – BBG
• NZ annual net immigration rose to 20,503 in the 12 months ended 31 August, up from a revised 19,927 in the year to July.
• The REINZ House Price Index fell 1.5% y/y in September, though it rose 0.4% m/m.
• (Bloomberg) -- "RBNZ will begin repurchase of April 2027 government bonds from Oct 15, the central bank said in a statement. Repurchase program is for liquidity management purposes and aims to support the efficient functioning of the New Zealand bond market."
• Swap rates are 1bp higher, with the 2-year rate at 4.00%.
• RBNZ-dated OIS pricing is little changed across meetings. 16bps of tightening is priced for October, while February 2027 and August 2027 assign 51bps and 103bps, respectively.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 2.00% May-32 bond, NZ$175mn of the 4.25% May-36 bond and NZ$50mn of the 5.00% May-54 bond.