Daily Flows

• Activity continues to build with another pick up in flows yesterday.
• There was a definitive split in appetite with a jump in activity around the 3 month area with the rest of the flow heading into the 1 year bucket.
• Despite lingering doubt over the outlook for interest rates, we are seeing growing interest in fixed income as investors lock in margin with some preferring floating.
• A further rise in the 1 year swap should see some TD rates go close, if not breech the 5% level while BBSW also set higher today.

A Balanced Approach From RBA Minutes

• The RBA released the minutes to their April meeting and it made for interesting reading.
• Outlined in detail was both the case for further tightening and also the case for pausing to gather additional information on the outlook
• On balance, the minutes were interpreted by the market as being on the hawkish side.
• As a result, the market has adjusted its expectations for cash rate over the months ahead.
• There is a 25% chance of a hike priced in for the May meeting which rises to around 70% by the August meeting meaning we still don’t have one more hike fully priced in.
• Despite the number of inputs that goes into the outlook, it feels like the near term pricing will be highly impacted by next week’s quarterly inflation update.
• Any miss to the downside would rule out May and only leave a small chance of a further hike in August while a strong read could potentially intensify the debate for a move in May.