AUSSIE BONDS: Modestly Cheaper, Subdued Pre-Payrolls Friday
ACGBs (YM -2.0 & XM -1.0) are modestly weaker on a typical local data-light pre-US payrolls Friday.
- According to MNI’s technicals team, Aussie 3-yr futures rallied off lower levels on the RBA rate cut and guidance, however, prices remain south of the 50-dma for now. The recent rally took out resistance at 96.730, the Sep 17 ‘24 high, however momentum faltered, leaving 96.860 resistance intact. This remains the key level to the upside. Instead, a continuation lower would strengthen a bearish theme. This would refocus attention on 95.760, the 14 Nov ‘24 low. A reversal higher would refocus attention on 96.860, the Apr 7 high.
- “Australian Prime Minister Anthony Albanese signaled scope for a potential deal on US beef imports to Australia as part of tariff negotiations with President Donald Trump.” (per BBG)
- Cash US tsys are flat to 1bp richer in today's Asia-Pac session.
- Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential -13bps.
- The bills strip has bear-steepened, with pricing -1 to -4.
- RBA-dated OIS pricing is firmer across meetings today. A 25bp rate cut in July is given an 84% probability, with a cumulative 78bps of easing priced by year-end.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
CHINA: Standard Lending Facility Rates Cut
- PBOC will cut standing lending facility rates starting from May 8, according to a statement.
- The Standing Lending Facility (SLF) is a monetary policy tool used by the People's Bank of China (PBOC) to provide liquidity to financial institutions. Typically financial institutions use the facility to borrow short-term funding, using bonds to collateralize the loan.
- Overnight standing lending facility will be cut to 2.25% from 2.35%
- Cut 7-day SLF rate to 2.4% from 2.5%
- Cut 1-month SLF rate to 2.75% from 2.85%
- This is an additional measure that not only will free up liquidity (and capital) but could result in bond market selling over time and has the potential to put upward pressure on yields.
CHINA: Further Measures Announced to Support Real Estate Sector
- Amongst the raft of new initiatives announced today, a cut in the loan rates for the individual housing provident fund by 0.25bps was announced.
- This directly impacts home loans that have a maturity of greater than 5 years with the PBOC governor suggesting it will save borrowers up to CNY20bn of interest annually.
- China has been in the grips of a multi year downturn for the property sector with recent data showing that used home prices have contracted every month since July 2021.
- The housing provident fund is a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees. It can only be used by employees for house-related expenses.
US: US Trade Data
Brad Setser posted a thread via X on the US trade data out overnight highlighting the surge in pharmaceuticals to avoid tariffs (and how it is likely to impact trade data going further), below are some key excerpts:
- Almost impossible to overstate just how crazy the US trade data -- and the pharmaceutical trade data -- has become.’
“I would not believe my spreadsheets if it wasn't 100% clear exactly what was going on -- big US pharma (and some European pharma companies) rushing high value goods into the US to beat the tariffs.”
“The aggregate data is crazy"
- “And the numbers on trade with all the centers of tax avoidance* collectively are crazy - - ”
- “The adjustments for pharma trade alone are gonna muck up the US h1 data (I suspect the front running continued in April), the EU & euro area data, the Swiss data and no doubt many other variables. Really hard to capture importing a year's worth of supply in a month!”
“The only silver lining is that the pharmaceutical companies have made the role that trade plays in their tax avoidance strategies abundantly clear -- the charts here make it easy for me to demonstrate that "modern" global trade is often mostly about tax avoidance”
