AUSSIE BONDS: Little Changed Despite Global Bond Rout, AU-US10Y Diff Down

The early bias in Aussie bond futures is weaker, with the 3yr (YM) and 10yr (XM) down around 3-3.5bps. This follows the negative lead from US Tsy futures on Friday, which were weighed by both weakness in JGB and Bund markets. The Fed's Williams also didn't see the need for fresh policy action in the near term, despite the weaker data prints last week. The US Tsy 2 and 10yr benchmarks finished around 2bps higher in Friday trade. For ACGB yields we are mostly mirroring these moves in early Monday trade, up around 2-4bps across the curve, albeit with the back end slightly outperforming in yield terms. 

• 10yr futures were last around 95.16, not too far from Dec lows at 95.12. Below, from here, is opening vol-band support through 95.087 and into 94.276. Any recoveries need to break back above 95.900 to signal near-term bullish traction.
• The 10yr ACBG yield is pressing back towards 4.80%, which we tested above in earlier Dec, but couldn't sustain. The 3yr ACGB is around 4.14%.
• The AU-US 10yr spread is edging highs to +63bps, maintaining a positive bias. The AU 3/10s curve is little changed at +63.5bps.
• The only release of note this week is the RBA minutes from the Dec policy meeting.
• Market pricing for an RBA hike in Feb next year has an implied rate around 3.68% (versus current rate of 3.60%), little changed over the past few weeks. 

The main driver of oil prices continues to be excess supply with them falling again last week, but geopolitical developments as well lighter trading over end December could cause some volatility. Ove the weekend, Ukraine struck a Russian platform and the US blockade of Venezuelan oil continued. 

• WTI rose 1.0% to $56.54/bbl on Friday to be down 1.2% on the week and 3.0% in December. It reached a low on Tuesday of $54.89.
• Brent was up 1.2% to $60.55/bbl on Friday reaching a high of $60.65, still below Monday’s $61.50. The benchmark was down 0.9% on the week and 2.9% on the month.
• The US oil blockade of Venezuela continues with it boarding two shadow fleet tankers and seeking a third that avoided the deterrent. Venezuelan storage is approaching limits which could drive a reduction in production.
• US National Economist Council Head Hassett said that the amount of oil confiscated is small relative to global supply. While US actions could still make markets wary, given the market surplus they are unlikely to change recent trends. Bloomberg reported that short-only positions reached a high last week.
• US-European-Ukraine-Russia talks continued in Florida on the weekend with special envoy Witkoff saying that they were “productive and constructive”. They apparently focused on finding common ground. Territory remains the key sticking point on achieving an agreement which could ease sanctions but increase global oil supplies.
• Ukraine struck a Lukoil platform in the Caspian Sea and an accompanying Russian military vessel on Friday night. Earlier in the week it had attacked an empty Russian tanker in the Mediterranean.
• The Baker Hughes US oil rig count fell by 8 in the week to 19 December.

NZGB yields are little changed in the first part of Monday dealings, as markets start to wind down ahead of the Christmas break starting later this week. The 2yr NZGB yield is a touch under 2.70%, back close to Dec lows. Oct lows were near 2.50% for this benchmark, while earlier Dec highs were close to 2.88%. The 10yr is slightly up in yield terms to 4.39%, still above all key EMAs but off earlier Dec highs (around 4.56%). US Tsy yields were mostly positive on Friday, albeit remaining within recent ranges, the 2yr to 3.48%, the 10yr to 4.15% (both up around 2bps) 

• We saw negative spill over from US Tsys on Friday from both JGB and Bund moves. The Fed's Williams' also told CNBC: “I don’t personally have a sense of urgency to need to act further on monetary policy right now because I think the cuts we’ve made have positioned us really well." He stated that this week's soft CPI print as well as the tick up in the unemployment rate were distorted by technical factors
• The NZ-US 10yr spread sits off recent highs, last at +26bps. The 3/10s curve is around +170bps, maintaining its steepening bias, but off recent highs.
• The local data data is now empty until the end of this month when Dec home prices are due. Things don't ramp up again until the middle of January, next year, from a data standpoint.