ANZ write "the probability of easing...>

AUSSIE BONDS: ANZ write "the probability of easing in May is still only priced

at 50%. This is relatively low by historical standards. Since the beginning of

2012, markets have on average priced a 78% chance of a cut in the month before a

cut. Indeed, the 50% pricing would make a cut in May the most 'unexpected' over

this period (the previous low being prior to the move in May 2016). The takeaway

from this is that if one has a strong conviction that the RBA will cut in May,

it is relatively cheap to express this position. We however, don't recommend

this - in our mind the payoff isn't high enough to offset the risk the Bank may

wait-and-see for another couple of months. Instead, we recommend an

August/February OIS flattener. Even if the RBA stays on hold, markets are

unlikely to unwind expectations of easing in the future, given that May isn't

aggressively priced. Whereas, if a cut does occur, it is likely to be a

revaluation of the extent of future easing (i.e. increased expectation of more

than two cuts), which would see outperformance of longer-dated OIS. Market

behaviour in recent years supports this view."