Daily Commentary BY THE CURVE TEAM –

Tighter RBA Repo Funding Today

23rd October 2018

In a speech yesterday, RBA Deputy Governor Guy Debelle mentioned he has an “open mind” as to what the level of full employment is in the economy, suggesting it might take longer than previously expected for inflation pressures to emerge. This has definitely confirmed we are on hold for the foreseeable future on any interest rate hike.

The AUD 5 year swap rate remains steady at 2.50%. The volatility in this key point of our yield curve sits at 100 bpts over the current cash rate and 50 bpts over the daily RBA repo price for short term funds. The yield on todays 14 & 72 day repos has risen 3 & 6 bpts today due to the RBA balance sheet contracting by about $3 Billion last week.

The next 3 days will see the US Treasury auction 2 yr/2yr FRN/5 yr & 7 yr bonds totalling $126 billion. The market has backed up in yield to bid for this supply at more favourable yields. Clearance should be relatively uneventful unless traditional bidders go missing.

Peter Sheahan

Director - Institutional Markets