AUSSIE BONDS: Slightly Cheaper, Subdued Ahead Of FOMC Decision & Jobs Data

Per the CFTC FX positioning update from Friday, leveraged contract shifts were mixed in the week ending the 11 of Feb. It was a similar backdrop for asset manager contract shifts, although there was some solid demand for JPY, AUD and CAD in that week, see the table below. 

• The bias for leveraged contracts was to move against the USD, albeit fairly modestly. GBP, NZD and CAD all source net buying in this space. Still outside of GBP, the net outright position was short for all the currencies measured in the survey.
• In the asset manager space, we saw a decent addition to net longs for JPY. This investor base is now at the highest level of fresh longs since March 2021.  
• We also saw decent covering of shorts in AUD and CAD by asset managers, although this investors base is still outright short both currencies.
• On balance, last week's positioning update still gives scope for USD longs to be trimmed further, given weaker data outcomes in the US and a modest tariff start from the Trump administration relation to pre-inauguration fears. 

Table 1: CFTC Positioning - By Currency & Investor Type - Week Ending Feb 11 2025 

• Over the weekend the Shanghai Security News reported on the explosion of growth of bond ETF’s in China.
• Analysis shows that the market now has 29 bond ETFs in existence, with the size of the funds now exceeding CNY200bn, having been only CNY100bn mid-year last year. 
• Launched in early 2013, China’s first ETF for many was the first step forward in the modernization of its domestic bond market; yet the growth and development was slow.
• The multi-year housing crisis was  key to the growth in domestic ETFs as private investors, looking for somewhere else for their savings, turned to the bond market.
• Since June 2023, new home prices have been in contraction highlighting investor concerns as to the oversupply in the domestic property.
• At the same time, the yield on the 10YR China Government bond (June 2023 to present) has contracted from 2.6% to 1.6% which no doubt is somewhat reflecting the development of the bond ETF market. 

ACGBs (YM -3.0 & XM -3.0) are weaker with US tsy futures on a data-light day ahead of tomorrow’s RBA Policy Decision. 

• Tomorrow’s RBA decision takes centre stage this week, with economists widely anticipating a 25bp rate cut.
• The RBA statement and updated forecasts will be released at 1430 AEDT with Governor Bullock’s press conference at 1530 AEDT.
• There are also Q4 wages on Wednesday and January jobs data on Thursday.
• The Q4 WPI is forecast to post another 0.8% q/q rise bringing the annual rate down to 3.2% from 3.5% in Q3.
• January employment is projected to rise 20k on Thursday after 56.3k the previous month, which would drive the unemployment rate up 0.1pp to 4.1%.
• Cash ACGBs are 3bps cheaper with the AU-US 10-year yield differential at -3bps.
• Swap rates are 3-4bps higher.
• The bills strip is -1 to -4, with a steepening bias.
• RBA-dated OIS pricing is flat to 5bps firmer across 2025 meetings today, with Dec-25 leading.
• A 25bp rate cut in April remains fully priced (116%), while the probability of a cut tomorrow stands at 82%.
• AOFM plans to sell A$800mn of the 2.75% 21 June 2035 bond on Wednesday and A$700mn of the 2.50% 21 May 2030 bond on Friday.