AUSSIE BONDS: Unchanged But At Session Highs, Early Close For US Tsys

Today’s 5-year bond auction demonstrated robust demand, with the auction price surpassing dealer expectations and exceeding the Bloomberg poll projection of 99.81. The cover ratio rose significantly to 4.4177x from 3.8070x, while the auction tail narrowed slightly compared to last month.

• The strong results sharply contrasted with the weaker demand seen in this month’s 10-year bond auction.
• ids were likely bolstered by the offering’s outright yield at a cyclical peak.
• The 5-year JGB has richened by approximately 1bp in early afternoon trading, with JGB futures strengthening and recovering from session lows.

ACGBs (YM +7.2 & XM +4.6) gap 6-8bps stronger after the RBA decision and statement. 

• The RBA Board held the cash rate at 4.35% amid signs of easing inflationary pressures. Inflation remains above target, with underlying inflation at 3.5%, and is not expected to sustainably reach the 2.5% target midpoint until 2026.
• Economic growth is weak, with output rising just 0.8% over the past year, the slowest pace since the early 1990s (excluding COVID-19). Labour market conditions remain tight but are gradually easing, while wage growth has slowed more than anticipated.
• The Board highlighted uncertainties in domestic and global outlooks and reiterated its commitment to bringing inflation back to target while monitoring economic and market trends.
• Overall, the guidance has softened with the Board “gaining” some confidence inflation will return to target.
• Cash ACGBs are 5-8bps richer on the day after the decision versus 4-5bps cheaper this morning. The AU-US 10-year yield differential at -4bps from +5bps this morning.
• Swap rates are 5-8bps lower, 6-9bps lower than pre-RBA levels.
• The bills strip has shunted richer, with pricing +1 to +9 after the decision.
• RBA-dated OIS pricing is 2-10bps softer across 2025 meetings, with later  meetings leading. A 25bps rate cut is now fully priced by April versus May pre-RBA.

Aussie and kiwi were G10 outperformers on Monday following the message from China’s Politburo that there will be more stimulus in 2025. However, during APAC trading today they were both underperforming giving up some of yesterday’s gains and AUDUSD is now below Monday’s close following the more dovish RBA statement. The BBDXY USD is off its low to be little changed.

• AUDUSD was down 0.4% to 0.6415 before the RBA decision to keep rates unchanged at 4.35%. It is now 0.8% lower at 0.6389 as the RBA noted that core inflation “remains too high” but it is “gaining some confidence that inflation is moving sustainably towards target”.
• NZDUSD is 0.6% lower at 0.5828, close to the intraday low. AUDNZD was up 0.1% at 1.0993 before the RBA decision with a high of 1.1002 but is now down 0.1% to 1.0969. It has struggled to hold gains above 1.10.
• After rising on Monday USDJPY is down slightly to 151.11 after falling to 151.04 earlier. AUDJPY is now down 0.8% to 96.63.
• European currencies are little changed with EURUSD around 1.0555 and GBPUSD 1.2745.
• Equities are mixed with the Hang Seng up 1.1% and CSI 300 +1.8% but ASX down 0.3% and TAIEX -0.6%. The S&P e-mini is moderately lower too. Oil prices are down with Brent -0.3% to $71.90/bbl. Copper is down 0.6% and iron ore is around $106.50/t.
• Later there is final US Q3 productivity/ULC and November NFIB small business optimism. The Eurogroup meeting is taking place.