Risk off mood sees market pricing sway towards November rate cut
We have witnessed sharp moves in Australian yields post FOMC minutes. As we approach the end of the week these moves have accelerated, being cemented with strong traded volumes and poor Chinese data. As equity indices have continued to weaken and breach key support levels there has been little reason for the move to revert. The longer end of the curve has lead the way with yields tumbling over 23 bps in the past 48 hours as priced into 10 Year bond futures. 3 Year bond futures have followed suit, with yields moving 17 bps to the downside with general flattening on the Curve. 90 Day Bank Bill futures are also moving in sympathy with the guts of the strip tracking upwards, pushing implied yields 8 bps lower over the past 3 days. Interbank futures are currently pricing in a 55% probability of a rate cut in November and fully priced in for March. We have a relatively light data week approaching, but RBA’s Steven is speaking mid-week which could be the key inflection point of the week.
Michael has over 20 years experience in derivatives in Prop, Investment Bank and "Local" environments, having traded through all the major financial events over the period. He started his career market-making in Interest Rate and Bond Option...
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