The physical bank bill rate and 3 month BBSW both increased by 6bps to 2.05%. Movements of this magnitude are highly unusual and reminiscent of the moves in March.
RBA assistant governor Christopher Kent made a speech in Tokyo and addressed the issue of higher BBSW. In his opinion, a higher USD LIBOR rate led to local banks shifting their demand for floating rate funds to the domestic market, essentially bidding up the price of money. “Hence, the rise in the US 3-month LIBOR rate relative to the Overnight Index Swap (OIS) rate was closely matched by a rise in the equivalent 3-month BBSW spread to OIS in Australia.” Not everyone agrees with this explanation.
Swap rates lagged their Commonwealth benchmarks again. The 1 year swap rate added 2bps to 2.01%, the 3 year rate increased by 3bps to 2.24%, 5 year rates rose by 5bps to 2.61%, 10 year rates increased by 6bps to 2.95% and 15 year rates added 5bps to 3.12%.
As a result, swap-to-bond spreads reversed the previous week’s movements. The 3 year spread dropped back from 9bps to 6bps, the 5 year spread slipped 1bp to 21bps and the 10 year spread lost 2bps to 17bps.
AFMA BBSW - SWAP RATES
| TERM TO MATURITY | Closing Rate | Δ WEEK | Δ MONTH |
|---|---|---|---|
| 30 Day | 1.90 | 0.03 | 0.00 |
| 90 Day | 2.06 | 0.07 | 0.01 |
| 180 Day | 2.16 | 0.06 | 0.01 |
| 1 Year | 2.01 | 0.02 | -0.02 |
| 3 Year | 2.24 | 0.03 | -0.05 |
| 5 Year | 2.61 | 0.05 | -0.05 |
| 10 Year | 2.95 | 0.06 | -0.05 |
| 15 Year | 3.12 | 0.05 | -0.06 |