BNP Paribas note that "second-tier.....>

AUSSIE BONDS: BNP Paribas note that "second-tier banks have already begun to

raise mortgage rates (by 9-15bp). Given the persistence of elevated funding

costs, we would expect the major banks also to raise rates heading into the

September quarter-end which is also the financial year-end for three of the four

major banks. Historically, periods of high funding spreads have tended to feed

through into mortgage rates with a six-month lag (top chart). Whilst there has

been an easing after the June quarter-end as we had expected, structural factors

suggest the next quarter-end is likely to see further funding pressures and a

much shallower easing in BBSW than previously. This is due to the following

factors: 1) Domestic balance sheet constraints leading to structurally higher

repo rates, possibly especially going into the financial year-end. 2) A high

amount of foreign purchases continues to be lent back to the RBA for cash. 3)

Increased demand for short-term funding given the slowdown in deposit growth

relative to credit growth. As we expect a further drop in BBSW in the near term,

we continue to recommend swap curve steepeners."