Below we have collated the opinions of our rates trading desk on the near term price action following today's 2:30pm (AEST) June RBA announcement.

We have included 3 scenarios - the RBA on pause with an accompanying neutral statement, a pause with a hawkish statement and a 25bp hike.

Our trading team places a 30% probability of a pause with a neutral statement, a 50% probability of a pause with a hawkish statement and a 20% chance of a hike.

Given that the market is still pricing rate cuts for December and throughout 2012, it is not surprising that under the 2 pause scenarios our team has a greater bias towards a sell-off on a hawkish statement.

It follows then that we foresee a sizable bear flattening on any RBA hike.

We expect swap spreads to be led by movements in the bills strip, with the 3-10yr box predicted to flatten from it's current steep levels.

Timothy Jung, Sydney

Ph: +61 8253 4971

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