US TSYS: Cash Bonds Little Changed

The AU-US 10-year cash yield differential currently stands at -9bps, positioned in the lower half of the ±30bps range that has largely held since November 2022.

• A simple regression of the 10-year yield differential against the AU-US 1-year forward 3-month swap rate (1Y3M) differential over the past year suggests the current spread is about 10bps above fair value, estimated at -19bps.
• The 1Y3M differential, a key gauge of expected relative policy trajectories over the next 12 months, has traded within a 15bps range this year and is currently at the lower end of that range.
• The 1Y3M differential has declined approximately 90bps since mid-September, falling from +55bps to -35bps. 

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Source: MNI – Market News / Bloomberg

• MNI: UK BRC JAN BY VALUE SHOP SALES LFL +2.5% YY, TOTAL +2.6% YY

BRC-KPMG retail sales increased 2.6% Y/Y in January, after two monthly prints that have been distorted by Black Friday timing (+3.2% in December and -3.3% in November).

• Smoothing out the distortion, the three months to January figures saw sales growth of 1.1%, similar to levels seen in the 3-months to October / September (1.3% and 1.2%). Also remember that this is a value rather than a volume index - so these growth numbers include inflation.
• Food sales increased 2.8% Y/Y, up from 1.7% in December, printing their highest level since August. Again - this is likely partly picking up food inflation reaccelerating.
• Non-food sales rose 2.5% Y/Y - this was higher than any other 2024 print other than the 4.4% rise in December which benefitted from the inclusion of Black Friday in 2024 (but not in the base period of 2023).
• Given the BRC follows the ONS calendar dates, it is likely ONS January retail sales will also see somewhat of a boost from what the BRC states is due to "January sales" despite "stormy weather" putting "a temporary dampener on demand". The Chief Executive of the BRC also notes sales were "also helped by the earlier start of the reporting period, adding a few more post-Christmas shopping days into the mix."
• Note the January survey data range was 4 weeks between 31st December 2023 and 27th January 2024, below the 5-week range this year. The BRC has noted it used weeks 1-5 of last year to compare for January rather than the 4-week period calculated for the January 2024 release, which should prevent any calendar skew. The ONS data is likely to already consider this through its calendar and seasonal adjustment process.
• Sales growth was recorded across nearly all categories excluding toys and baby equipment.
• Like-For-Like sales rose 2.5% Y/Y (vs 3.1% in December).
• Data covers: 29 December 2024 - 1 February 2025.