BOJ: Fixed Rate Purchase Offer​

More information is trickling out regarding the May 9 budget. The government is focussed on providing cost-of-living relief while not providing fiscal stimulus that adds to inflation. It continues to talk about providing a responsible budget.

• The budget recorded a $1bn surplus in the financial year to March due to strong commodity prices, low unemployment and higher inflation but the structural position was a deficit of $11.2bn. This is a lot better than expected in October. But Treasurer Chalmers has said that a surplus over the whole year is not a priority in this term, while the FY23 forecasts are likely to be revised to show a smaller deficit.
• Chalmers has said that there would be a “substantial near-term improvement” in the budget but then it would deteriorate after that. Westpac expects the FY23 deficit to be $30bn better than predicted at $6.9bn or 0.3% of GDP and for there to be a $110bn improvement over the forecast horizon.
• Treasurer Chalmers noted that “… no government can satisfy all of the calls for more spending in the budget … particularly at a time when we’ve got persistently high inflation and structural deficits.” But he said that a higher share of the recent revenue windfall will be spent than in October to help cushion the growth slowdown. If this increases demand, that could make the RBA’s job harder in bringing down inflation.
• There is going to be a cost-of-living package for the most vulnerable, including a probable increase in JobSeeker payments for the over 55s, as they are the most likely group to experience long-term unemployment.
• Other measures include $400mn to retain defence personnel and $314mn to cut taxes for SMEs who go “green”.
  
  - The Australian

JGB futures pare the post-Tokyo downtick to be -8 versus settlement levels. The move away from overnight cheaps has been aided by marginally richer US tsys in early Asia-Pac trade.

• April’s monetary base fell 1.7% Y/Y versus -1.0% in March but failed to have any appreciable impact on the market.
• Without any meaningful domestic headlines, local participants appear content to eye US tsys ahead of Euro Area CPI (Apr) later today and the FOMC policy decision tomorrow.
• Cash JGBs are 0.2bp richer to 1.7bp cheaper with the 2-year zone the strongest and the 20-year zone the weakest. The benchmark 10-year yield is 0.8bp higher at 0.415%, below the BoJ's YCC limit of 0.50%.
• Swaps curve bear steepens with swap spreads wider out to the 10-year zone and narrower beyond.
• The MoF is also scheduled to sell Y6.3tn 3-month bills and conduct a Liquidity Enhancement Auction For OTR 1-5 Year JGBs.

Cash tsys have opened dealing 0.5-1bp richer across the major benchmarks, the curve has marginally steepened. Asia-Pac participants have faded Monday’s cheapening perhaps using the opportunity to exit short positions/enter fresh long positions. TYM3 deals at 114-18+, +0-02+, at the top of the narrow 0-02 range.

• The RBA's monetary policy decision is the highlight in todays Asian session, the bank is expected to hold the cash rate at 3.60%.