AUD: A$ Little Changed Despite Higher US Equity Futures, AUD/JPY Near 93.00

• Tsys futures closed Tuesday's session lower following Powell, in US Senate committee testimony, reiterated that there’s no urgency to cut interest rates further, there was strong demand for an auction of 3yr notes, which is the first of three Treasury coupon auctions this week, aided the steepening move. TU closed -01¼ at 102-22⅜, while TY closed  - 08+ at 108-30+.
• In options/flows there was a futures flows included a DV01 $1m block sale in SOFR futures, while a DV01 $1m buyer of 2yr note futures looked to fade the early weakness, while later in the session there was continued selling of 10yr puts, a sign of further profit-taking on a large wager built last week.
• Cash tsys curves bear-steepened, with yields closing 1bps to 4.5bps cheaper. The 2yr closed +0.9bps at 4.283%, while the 10yr closed +3.8bps at 4.535%. The 2s10s climbed 2.7bps to 24.568, while the 2s20s rose 3.3bps to 51.25
• The Fed's Williams expects inflation to continue declining toward the 2% target but warns of policy-related uncertainties. He sees the Fed’s current restrictive stance as supporting both inflation control and economic stability but notes that reaching 2% inflation will take time. He highlighted slowing wage growth and anchored inflation expectations as positive sign and forecasts 2% economic growth in 2025-2026, with inflation falling from 2.5% this year to 2% in the coming years.
• Ahead of CPI later today, fed-dated OIS is pricing in about 35bps of cuts this year, with the first full 25bps cut priced for September.

Bidding at today’s A$400mn auction of the 2.75% 21 May 2041 bond is likely to be shaped by several key factors: 

• The outright yield is 10bps lower than at the previous auction and 20bps below its November 2024 high.
• The 3/10 yield curve has steepened by 10bps since the last auction and is near its steepest level since August 2022.
• The 10/20 yield curve is also 10bps steeper than at the previous auction but remains 5bps below its September 2024 high.
• Sentiment toward longer-dated global bonds has improved since mid-January, with the US 10-year Treasury yield falling by 25bps, supporting demand for duration.
• Results are due at 0000 GMT / 1100AEST.

The Australian Office of Financial Management (AOFM) will today sell A$400mn of the 2.75% 21 May 2041 bond. The line was last sold on 18 November 2024 for A$300mn. The sale drew an average yield of 4.8759%, at a high yield of 4.8800% and was covered 3.3333x. There were 49 bidders, 16 of which were successful and 9 were allocated in full.

• The AOFM also plans to sell A$700mn of the 1.50% 21 June 2031 bond on Friday. Accordingly, this week's ACGB supply is lighter than the recent average weekly issuance of $1500mn.
• According to the MYEFO 2024-25 Issuance Program Update from the Australian Office of Financial Management (AOFM), total issuance has been revised to around $95 billion ($46.4 billion has been completed). This includes around $2 billion of Green Treasury Bond tenders ($600 million has been completed). Issuance of Treasury Indexed Bonds is expected to be around $3 billion ($1.7 billion has been completed).
• Results are due at 0000 GMT / 1100AEST.