The physical bank bill rate moved up by 11bps to 1.96% while the 3 month BBSW increased by 5bps to 1.96%. BBSW increased by 11bps last week (physical bills lagged BBSW and then caught up early this week) and after this week’s increase, it is now at a 46bps margin to the official cash rate.
As Damien McColough, Head of Rates Strategy at Westpac noted, “It is the speed of the move that is as much in question as its meaning or the absolute size of the funding spread.” However, he also noted the spread was still within its historically “normal” range of values.
The slope of the government bond yield curve was a little flatter as yields fell by roughly similar amounts along the curve. Swap rates moved in a broadly similar manner while lagging a little in magnitude. The 1 year swap rate added 3bps to 1.91% but the 3 year rate fell by 4bps to 2.16%, 5 year rates fell by 6bps to 2.53% and 10 year and 15 year rates both dropped by 6bps to 2.90% and 3.19% respectively.
As a result, movements in swap-to-bond spreads were mostly unchanged, except at the long end. The 3 year spread increased by 4bps to 14bps, the 5 year spread widened by 25bps and the 10 year spread gained 4bps to 21bps.
AFMA BBSW - SWAP RATES
| TERM TO MATURITY | Closing Rate | Δ WEEK | Δ MONTH |
|---|---|---|---|
| 30 Day | 1.78 | 0.02 | 0.10 |
| 90 Day | 1.96 | 0.05 | 0.19 |
| 180 Day | 2.08 | 0.04 | 0.17 |
| 1 Year | 1.91 | 0.01 | 0.07 |
| 3 Year | 2.16 | -0.04 | -0.04 |
| 5 Year | 2.54 | -0.05 | -0.07 |
| 10 Year | 2.90 | -0.06 | -0.10 |
| 15 Year | 3.09 | -0.06 | -0.12 |