AUSSIE BONDS: Weakness Extends As US Tsys Cheapen Further Today
ACGBs (YM -7.0 & XM -7.5) are cheaper after extending weakness induced by US tsys’ heavy close on Friday. This movement aligns with today's Asia-Pac session, where cash US tsys are 1-2bps cheaper, showing a slight steepening bias.
- US economic data and Treasury supply are being brought forward this week to accommodate Thursday's "day of mourning" to honour President Carter.
- Cash ACGBs are 8-13bps cheaper, with the 5-year underperforming. The AU-US 10-year yield differential is at -16bps.
- Outside of the previously outlined S&P Global Dec. PMIs, there hasn't been much by way of domestic drivers to flag.
- Swap rates are 7bps higher.
- The bills strip is showing -4 to -6 across contracts.
- RBA-dated OIS pricing is flat to 6bps firmer across meetings. A 25bp rate cut is more than fully priced by April (114%), with a February cut at a 57% chance.
- The local calendar heats up this week with the release of November CPI data on Wednesday. The calendar also sees Building Approvals tomorrow, and Retail Sales and Trade Balance on Thursday.
- AOFM Bond issuance is expected to resume in the week beginning 13 January 2025.
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MNI UST Issuance Deep Dive: Dec 2024 (2/2)
Throughout November’s policy and market volatility, though, Treasury auctions largely impressed, with 5 of 7 nominal coupon sales trading through.
- Auction Results: November’s nominal coupon auctions were generally strong, with five out of seven auctions trading-through, of which four saw a positive reading on MNI’s Relative Strength Indicator (RSI). The remaining two auctions; 3 and 20-year auctions tailed. See page 2.
- Upcoming Supply: Issuance resumes next week with sales of $58B in 3Y Note, $39B in 10Y Note (reopen), and $22B in 30Y Bond (reopen). December is set to see $15B in nominal Treasury coupon sales, in addition to $22B in 5Y TIPS and $28B FRN for a total of $365B – slightly below the Oct and Nov totals of $369B which were joint-highest since Oct 2021.
- MNI's review includes a calendar of upcoming auctions and buyback operations.
US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Dec 2024 (1/2)
MNI's latest US Treasury Issuance Deep Dive has just been published (PDF link here):
November proved a dramatic month for Treasuries. Yields were volatile before and after the Nov 5 election - after ending October at 4.28%, 10Y yields peaked at five-and-a-half-month high just above 4.50% mid-month before closing November just below 4.18%, as markets attempted to price in the implications of a Republican “sweep”.
- Also buffeting rates was speculation over the would-be successor to Treasury Secretary Yellen. President-elect Trump’s selection of hedge fund manager Scott Bessent was greeted with bull flattening in the curve, implying perhaps that he’s seen as more cautious on fiscal deficits than some of the alternatives (he has expressed support for halving the annual budget shortfall to 3% of GDP).
- The first quarterly Refunding process of Bessent’s Treasury is in early February, by which point we may start to have a better sense of the incoming administration’s approach to both fiscal policy and to more issuance-specific considerations such as duration management.
- Bessent for instance has argued that Yellen’s Treasury erred from a risk management perspective by boosting short-duration issuance, and there are suggestions he would be in favor of reversing course, telling Bloomberg in June “When rates are very low, you should extend duration…I think it’s very unfortunate what Secretary Yellen’s doing. She’s financing at the front end, and she’s making a bet on the carry trade, which is not good risk management.”
US LABOR MARKET: MNI US Employment Insight: Soft Enough To Keep Fed Cutting
Our latest Employment Insight has just been published and emailed to subscribers.
