AUSSIE BONDS: Cheaper Ahead of US CPI, AU-US 10Y Diff Near Bottom Of Range

NZGBs closed at session cheaps, with benchmark yields 3-4bps higher. NZ-US and NZ-AU 10-year yield differentials were little changed. 

• With the domestic calendar empty, attention was focused abroad.
• Cash US tsys are trading 2-3bps cheaper in today's Asia-Pac session as risk bounces on US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland. US Treasury Secretary Bessent said there had been 'substantial progress' in the two days of talks with China and that further details would be shared today.
• “The Reserve Bank of New Zealand (RBNZ) is "well-placed" to offset the impact of the projected lower discretionary fiscal spending on aggregate demand as the effect of the government's fiscal consolidation is likely to be limited at the macroeconomic level, ANZ Research said in a budget preview report on Monday.” (per MTN via BBG)
• Swap rates closed 3-4bps higher.
• RBNZ dated OIS pricing closed slightly firmer across meetings. 25ps of easing is priced for May, with a cumulative 75bps by November 2025.
• Tomorrow, the local calendar will be empty ahead of Card Spending and Net Migration data on Wednesday. 

RBA-dated OIS pricing is 2-24bps firmer across meetings than levels before the release of Q1 CPI data on April 30.

• Q1 headline and underlying inflation printed 0.1pp higher than expected, but the trimmed mean at 2.9% y/y was below the top of the RBA’s 2-3% target band for the first time since Q4 2021.
• The data was close to the RBA’s expectations and at this stage consistent with inflation sustainably remaining within the band. Thus, another 25bp rate cut to 3.85% is likely on May 20, assuming that easing is consistent with the RBA’s updated outlook.
• A 50bp rate cut in May is given a 2% probability (10% before the CPI data), with a cumulative 93bps (117bps before) of easing priced by year-end.

Figure 1: RBA-Dated OIS – Post-CPI Vs. Pre-CPI

Source: MNI - Market News / Bloomberg

• Gold started the week lower and is trading at US$3,281.41 in afternoon trade, a decline of 1.32%.
• This morning's move sees gold breach the 20-day EMA of $3,284.60 with the 50-day EMA below at $3,162.71.
• Evidence of trade talks and the somewhat easing of tensions has taken some of the safe haven bid out of gold this morning and given the strength of last week's performance, it is likely profit taking is behind this morning's move.
• US and China reported 'substantial' progress after two days of talks in Switzerland with markets looking for a de-escalation of a trade war that could materially lower global growth.