After local hours on Tuesday Bank of...>

AUSSIE BONDS: After local hours on Tuesday Bank of America Research noted that

"the government's economic and fiscal update will be delivered on 23 July and is

likely to flag a record budget deficit close to A$200bn for the 2020-21 fiscal

year. Risk is for further slippage in the Budget if lockdown restrictions are

extended that increases the chance of the AAA rating coming more into focus over

the year. The scale of the government's financing task has already seen a surge

in bond supply. However, demand for AUD debt by foreign investors has also

risen. Supply-demand imbalances will likely lead to 10yr underperforming on a

5s-10s-20s cash fly. The challenging economic outlook argues for a flatter AUD

2s-5s curve and lower real yields. The recent recovery setback suggests the

Reserve Bank of Australia (RBA)'s 3yr yield target may remain intact for a more

extended period and supports mid-curve carry/roll-down strategies.

Semi-government bonds around the 6-7yr sector carry attractively. We also like

receiving the belly of a 2s-5s-10s swap fly especially as funds are drawn from

the Term Funding Facility and helps to keep swap spreads narrow."