2/2: A few trade recommendations.......>

AUSSIE BONDS: 2/2: A few trade recommendations from J.P.Morgan: They consider

"the prospect that AUD 10Y swap spreads might trade -ve. Even though the

outright level of 10Y swap spreads looks low, we think there are a number of

compelling arguments which merit a received position. 1st, AUD 5Yx5Y swap yields

look high vs. other DM markets. 2nd, 10Y swap spreads look fair on our valuation

model. Finally, the RBA is unlikely to buy any supply in this sector of the

curve. Risks to this trade are 2-fold; either another decline in the AUD/USD 10Y

x-ccy basis swap brings more deal related pay-side flow in the 10Y IRS tenor, or

alternatively, the ongoing absence of receive-side flow related to callable

issuance in AUD. This type of issuance has been low of late, with issuers

exhibiting a preference to issue in other currencies. We also recommend entering

a received position in AUD/USD 3Yx3Y x-ccy basis. The main rationale for this

trade is that slowing asset growth in the banking system & access to the RBA's

TFF should sig. reduce banks' demand on offshore funding. Moreover, this tenor

of the curve offers attractive rolldown. Granted, take up of the TFF has been

modest, but we exp. this to rise given the relative cheapness of the scheme."