AUSSIE BONDS: Trading At Cheaps With The Curve Flatter

Australia’s Q2 WPI rose 0.8% q/q and 3.4% y/y after 0.9% & 3.4% in Q1, close to expectations. As a result, Westpac notes that wages growth is “tracking much as we, and the RBA, have been expecting”. Since the WPI is fairly stable and “unlikely to surprise”, then it “presents no risk to the medium-term outlook for inflation and thus interest rates”. Westpac is expecting another 25bp rate cut in November after this month’s easing.

• Public wages grew faster than the private sector at 1.0% q/q & 3.7% y/y compared with 0.8% q/q & 3.4% y/y. Westpac states that “the ABS noted that this quarter’s lift in the public sector reflected backdated pay rises from recently approved state-based enterprise agreements coming into effect, coupled with regular scheduled pay increases”.
• “As you would expect with moderating aggregate wage inflation, the share of jobs that recorded an annualised wage change greater than 4% over the past twelve months has decreased each successive quarter since June quarter 2024.”
• “The June quarter is traditionally a very quiet time for an increase in award wages which gained just 0.1% holding the annual pace flat at 3.3%yr. We expect to see a much larger increase in the September quarter with the annual lift to the minimum wage/awards. This year the increase granted was 3.5% compared to 3.75% in 2024.”
• “In the June quarter, both individual arrangement and enterprise bargaining wages gained 0.6%. For individual arrangements, this was a step down from 0.7% in June 2024 while enterprise bargaining matched the June 2024 print of 0.6%. So overall, enterprise bargaining wages held the annual pace at 3.6%yr while individual arrangements maintained a below average pace of 3.2%yr.”

ACGBs (YM +1.5 & XM flat) are slightly stronger after today’s wages data.

• Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session after yesterday’s twist-steepener.
• With May and June employment gains disappointing, tomorrow’s July data will be monitored closely for signs that the labour market has turned. Q2 employment averaged 28.8k/month up from Q1’s 1.4k but slightly lower than Q2 2024’s 32.2k. Bloomberg consensus expects a 25k gain in July after June’s +2k, slightly below the Q2 average. The unemployment rate is forecast to decline 0.1pp to 4.2%, returning to the Q2 average.
• In its updated staff projections on Tuesday, the RBA continued to expect the Q4 2025 unemployment rate to be 4.3% and then stay there. Employment growth was revised up to 1.6% from 1.4% in Q4 2025 and it then slows to 1.4% and remains there over the rest of the forecast horizon.
• Cash ACGBs are flat to 2bps richer with a steeper 3/10 curve and the AU-US 10-year yield differential at -5bps.
• The bills strip is flat to +2.
• RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in September is given a 42% probability, with a cumulative 40bps of easing priced by year-end.
• The AOFM plans to sell A$1000mn of the 2.75% 2 1 November 2029 bond on Friday.

NZGBs closed showing a bull-steepener, with benchmark yields 2bps lower to 1bp higher.

• The NZ-US and NZ-AU 10-year yield differentials closed flat and 2bps wider, respectively.
• July NZ card transactions rose 0.6% m/m, the highest monthly increase this year, but the annual rate is still down 1.0%. Retail spending was up 0.2% m/m rising 1.2% y/y, signalling a gradual recovery in nominal consumption. It has been trending higher since the March trough at -1.8% y/y. The RBNZ is likely to cut rates on August 20 as inflation is in the band and the economic recovery remains subdued, and the July card data was consistent with this.
• Swap rates closed 1-2bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed slightly softer across meetings. 23bps of easing is priced for August, with a cumulative 41bps by November 2025.
• Tomorrow, the local calendar will be empty ahead of the July BNZ manufacturing PMI Index and July monthly price series on Friday.
• Tomorrow, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond and NZ$250mn of the 2.75% Apr-37 bond.