Daily Flows

• Strong moves upwards in the swap curve yesterday on the back of April inflation data are likely to flow into term deposit levels today.
  
• Yesterday, we saw 12 month rates approach 5.35% from a couple of A1 & A2 issuers, with levels creeping upwards after a May dip.
• Flows into senior bank paper continued yesterday with 5 year FRNs attracting significant investor interest, with Westpac & NAB lines top of the list for market participants.

Persistent Inflation Sends Yields & Brows Higher

• YoY Australian inflation delivered an upside surprise yesterday, climbing to 3.6% in the month of April on expectations of 3.4%.
  
• CPI ex-volatile items such as fuel and fruit & vegetables stayed steady at 4.1%, with the same reading for the trimmed mean figure.
  
• A point of concern for the RBA would relate to the traditionally goods-heavy CPI basket used in April. Services have been responsible for most of the inflationary pressures in the economy over the last two years, so signs of persistent goods inflation represent an unwelcome development for the central bank.
  
• The RBA is expected to place more weight on June’s monthly inflation print along with Q2 prices data, both due before its August meeting, but softening retail sales combined with persistent inflation are an ominous combination as it tries to tread an increasingly narrow path.
  
• Yields were up 13-14 basis points across the sovereign curve on the back of yesterday’s data, with the 10 year up another 5bps so far this morning.