AUSSIE BONDS: Tight Ranges In Play Ahead Of Long Weekend & RBA
The ACGB space has held onto the twist steepening impetus derived from overnight futures trade, with generally limited activity observed ahead of the long Sydney weekend.
- Participants are seemingly unwilling to deploy fresh risk ahead of Monday’s lower liquidity session (which includes the closure of cash ACGBs) and Tuesday’s RBA decision (with ~44bp of tightening priced into OIS and 13/17 surveyed by BBG looking for a 50bp hike), with a lack of meaningful headline flow also limiting participation.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
JGBS: Back From Best Levels, Curve A Touch Flatter
JGB futures were confined to the range established during the overnight session during the Tokyo morning, after blipping higher at the re-open, dealing -1 at the lunch break. Cash JGBs run little changed to 1bp richer on the day, with the curve a touch flatter.
- Firmer than expected domestic data and modest upside surprises in the Chinese official PMI prints likely capped, and then pressured, the space during the Tokyo morning.
- BoJ board member Nakagawa reaffirmed the Bank’s central stance in her latest address i.e. reaffirming the need for sustained monetary easing as the Bank looks to facilitate meaningful wage growth.
- BoJ Rinban operations generated the following offer/cover ratios:
- 3- to 5-Year: 2.84x (prev. 2.42x)
- 5- to 10-Year: 1.86x (prev. 2.11x)
- 10- to 25-Year: 5.32x (prev. 4.21x)
- 25+-Year: 4.03x (prev. 3.61x)
- This may result in some steepening pressure in early afternoon trade.
US TSYS: Marginally Lower In Wake Of Chinese PMIs
The modest beats for the official Chinese PMI data have had an incremental negative feedthrough into the Tsy space, but the moves are very limited, with the manufacturing reading still residing in contractionary territory.
- TYZ2 -0-01+ at 117-01, at the base of a 0-04 range, while cash Tsys run 1-2bp cheaper across the curve, with 2s leading the way lower.
- Focus now moves to Wednesday’s domestic data slate, headlined by the rejigged ADP employment print, with the Fed’s data-dependent mindset when it comes to the speed and degree of further hikes to be witnessed in the ongoing hiking cycle well-entrenched via recent Fedspeak.
AUD: China PMI Beats Help A$ Sentiment Stabilize
AUD/USD is up slightly from NY closing levels. The pair last around 0.6860, although we haven't been able to make much headway beyond this level (highs for the session are at 0.6867). The better than expected China PMI prints (49.4 versus 49.2 expected for manufacturing, 52.6 versus 52.3 expected for non-manufacturing) helped offset weaker than expected Australian Q2 construction data.
- The China composite PMI was 51.7 versus 52.5 in July, so that fits with some loss of China economic momentum through August, although arguably not as bad as feared.
- For the A$ we are seeing some stability in key commodity prices like iron ore (last $98/tonne), which will be helping at the margin.
- The AU-US 2yr spread continues to drift lower though, with 2yr AU ticking down to 2.95%. This puts the spread back to -47bps, around -3bps from opening levels.
- Yield momentum is also weighing on the AUD/NZD cross. This pair is back sub 1.1200 (last 1.1190), although we have seen some stability post the China data (earlier lows were just above 1.1170).
