The physical bank bill rate inched by 1bp to1.96% while 3-month BBSW remained unchanged at 1.95%. 6-month BBSW added 1bp to 2.15%.
One of the few interesting things to come of the August minutes of the RBA Board meeting was the discussion regarding Australian short-term money markets. “Members noted that banks had become less inclined to supply liquidity to money markets in light of regulatory developments, although this development had also been experienced in money markets in other countries.” Lower levels of supply lead to a higher “price” of money; in other words, a higher interest rate.
Then there is the additional demand from offshore. “In foreign exchange swap markets, where structural changes in liquidity conditions had also been apparent, interest rates had increased as a result of stronger demand for Australian dollars, partly reflecting the conversion back to Australian dollars of increased offshore bond issuance by Australian banks.” Banks have issued bonds in euro, USD etc and then converted back to AUD and from a fixed rate to a floating rate. Higher levels of demand lead to a higher “price” of money and thus a higher interest rate.
Swap rates either remained unchanged or slipped by a basis point all along the curve, pretty much in a similar manner to their Commonwealth counterparts. 1-year and 3-year swap rates both lost 1bp to 1.96 and 2.09% respectively. The 5-year rate remained unchanged at 2.41%, the 10-year rate slipped by 1bp to 2.73 and the 15-year rate was unchanged at 2.91%.
As a result, swap-to-bond spreads barely changed. The 3-year spread slipped 1bp to 8bps while the 5-year and 10 year spread remained unchanged at 24bps and 19bps respectively.
AFMA BBSW - SWAP RATES
| TERM TO MATURITY | Closing Rate | Δ WEEK | Δ MONTH |
|---|---|---|---|
| 30 Day | 1.86 | 0.00 | -0.10 |
| 90 Day | 1.95 | 0.00 | -0.07 |
| 180 Day | 2.15 | 0.01 | -0.03 |
| 1 Year | 1.96 | -0.01 | -0.07 |
| 3 Year | 2.09 | -0.01 | -0.07 |
| 5 Year | 2.41 | 0.00 | -0.08 |
| 10 Year | 2.73 | -0.01 | -0.09 |
| 15 Year | 2.91 | 0.00 | -0.08 |