STIR: RBA Dated OIS Pricing Firmer Today But Mixed Vs. Pre-RBA Decision Levels

• Tsys futures closed mixed on Monday, curves twist-flattened with front-end yields cheaper fueled by inflationary risk from tariffs and a risk-off bid coming into the long-end on growth concerns, while projected rate hike pricing through mid-year cooled. Large swings occurred following headlines Trump will delay tariffs on Mexico, while later in the session he announced tariffs will be delayed on Canada. TU closed -01¾ at 102-24¼, while TY closed +03+ at 108-30+
• There was a large bullish tsys options trade with expectations for a 10yr yield drop below 4% by Feb. 14. A trader bought 43,213 US 10-year Week 2 112.75 calls, with the strike implying a yield of ~3.95%. The $675,000 premium indicates a fresh bet on a bond rally. There was also a week 1 US bond put trade which targeted the 30yr yield rising to about 4.88% ahead of Wednesday's expiry.
• Cash tsys yields closed higher across all tenors with the 2yr +5.2bps at 4.249%, while the 10yr closed +1.6bps at 4.555%. The outperformance by long-end yields saw the 2s10s, 5s30s drop 5.5bps and 4bps.
• The fed's Goolsbee cautioned that the Fed should slow the pace of rate cuts due to rising uncertainty, particularly from Trump’s newly announced tariffs on Mexico, Canada, and China. While tariffs on Mexico and Canada have been postponed, Goolsbee highlighted the challenge of distinguishing between economic overheating and temporary trade-related effects. His comments align with Atlanta Fed’s Bostic and Boston Fed’s Collins, who also advocate a patient approach after 100bps of cuts in late 2024.
• Today we have Factory Orders & Durable Goods Orders

ACGBs (YM -6.0 & XM -5.5) are cheaper after US tsys bear-flattened, with US yields finishing flat to 5bps higher. 

• The week began with the fallout from President Trump’s announcement on tariffs on the three largest trading partners of the US. As markets opened, the USD soared, equity futures plunged, and the US tsy curve flattened. However, these moves showed some reversal after Trump agreed to delay the tariffs on Mexico (and now Canada) by a month. Tariff negotiations with China are ongoing.
• Cash ACGBs are 5-6bps cheaper with the AU-US 10-year yield differential at -12bps.
• Swap rates are 4-5bps higher.
• The bills strip has bear-steepened with pricing -2 to -7.
• RBA-dated OIS pricing is flat to 4bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (138%), with the probability of a February cut at 91% (based on an effective cash rate of 4.34%).
• Today, the local calendar will see Household Spending and S&P Global Composite & Services PMIs.
• The AOFM announced the issue by syndication of a new 4.25% 21 March 2036 Treasury Bond. The issue will be of a benchmark size. Initial price guidance is a spread of 2 to 5bps to XMH5. The issue is expected to be priced tomorrow.

• Gold’s ‘safe-haven’ status was evident overnight as investors focused on ongoing tensions emanating from potential US tariffs.
• Yesterday’s weaker than expected day due to USD strength was pushed aside as gold rallied throughout the day to reach new all time highs.
• Opening at US$2,815.41 gold’s fortunes continued to fall, reaching a low of $2,772.23; before a dramatic turnaround to touch $2,830.74.
• Gold gave back some of the gains to close it’s US trading day at $2,814.65.
• There was some unexpected beneficiaries from the threatened tariffs on Canada with Canadian gold stocks rallying aggressively in Monday’s trading session.
• If the tariffs are fully implemented, there is a chance it is good for gold’s fortunes as a trade war could create inflation or could be dollar negative.   
• Despite several materially down days, gold is already up over 6% year to date, following last years +27% rally.