AUSSIE BONDS: Little Changed Ahead Of Trump Tariff Announcement

• Bond futures are stronger today as China’s National People's Congress is about to kick off.
• China’s 10YR future is up +0.09 at 108.295, following Friday’s close of 108.205.
• The 10YR is at the mid-point of the 50-day EMA and the 100-day EMA as the 20-day EMA loses momentum.
• China’s 2YR future is up +0.06 today at 102.652, following Friday’s close of 102.59.
• The 2YR future has breached the 200-day EMA of 102.63 and is trending upwards with the 20-day EMA trending lower at 102.68.
• There is considerable expectation built up from this year’s NPC with both monetary and fiscal policy announcements expected.
• China’s authorities generally keep markets stable around the NPC.   

RBA-dated OIS pricing is flat to 3bps firmer across meetings today. 

• Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through July are 2-5bps firmer, while those beyond are 2-9bps softer.
• Last week, January headline CPI inflation printed slightly lower than expected at 2.5% y/y, in line with December. However, the underlying trimmed mean rose 0.1pp to 2.8%, but still below the top of the RBA’s 2-3% band. The first month of the quarter has limited updates for services inflation. The seasonally adjusted data is consistent with the RBA remaining cautious with it stating that “upside risks remain”.
• A 25bp rate cut in April is given a 9% probability, with a cumulative 57bps of easing priced by year-end (based on an effective cash rate of 4.09%). 

Figure 1: RBA-Dated OIS – Today Vs. Pre-RBA Levels

Source: MNI – Market News / Bloomberg

ACGBs (YM -3.0 & XM -4.0) are weaker after today’s stronger-than-expected domestic data drop, namely Q4 Inventories and Company Profits.

• However, the key driver of today’s movements has been US tsys. Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session after an emergency security summit in London on Sunday raised bets that haven demand could lose its appeal should prospects improve for an end to fighting in Ukraine.
• Nevertheless, this weakness has started to reverse as some anticipate that slower US growth expectations could see traders increasingly price in a potential Federal Reserve rate cut as soon as June.
• “Moreover, the risk of a government shutdown from March 15 appears greater than ever.” (per BBG)
• Cash ACGBs are 3bps cheaper with the AU-US 10-year yield differential at +10bps.
• Swap rates are 3bps higher.
• The bills strip has bear-steepened, with pricing flat to -3.
• Tomorrow, the local calendar will see Q4 Current Account Balance and Net Exports of GDP, and January Retail Sales data alongside the RBA Minutes of the February Policy Meeting.
• This week, the AOFM plans to sell A$800mn of the 4.25% 21 March 2036 bond on Wednesday and A$700mn of the 1.00% 21 December 2030 bond on Friday.