ACGBs (YM -8.0 & XM -4.5) are heavy in morning trade following a relatively hawkish speech from RBA Governor Bullock after-market. The Governor noted that the final stretch of reducing inflation to target will take longer than the initial leg (see this link). Additionally, she noted that “the remaining inflation challenge we are dealing with is increasingly homegrown and demand-driven…a more substantial monetary policy tightening is the right response to inflation that results from aggregate demand exceeding the economy’s potential to meet that demand”.

• The heavy tone to ACGBs can also be attributed to a bear-flattening of the US tsy curve overnight, with yields flat to 3bps higher. US jobless claims and UofM inflation expectations data were not US tsy-friendly, sending yields higher led by the 5s.
• Cash ACGBs are 5-8bps cheaper, with the AU-US 10-year yield differential 6bps higher at +9bps.
• Swap rates are 4-7bps higher, with EFPs 1bp tighter and the 3s10s curve flatter.
• The bills strip has bear-steepened, with pricing -4 to -9.
• RBA-dated OIS has shunted higher, with pricing 1-10bps firmer across meetings. Terminal rate expectations firm 7bps to 4.51%.
• Flash Judo Bank PMIs have printed weaker across the board, with Mfg 47.7 (48.2 prior), Services 46.3 (47.9 prior) and Composite 46.4 (47.6 prior).