Daily Flows & Insights – RBA Minutes

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.
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Curve Team
David Flanagan