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AUSSIE BONDS: BofAML believe that "the nominal and real curve should retain a
steepening bias as term premium reprices higher through the combination of
fiscal support by the government, strong momentum for growth and the more
reactive policy approach by the RBA. The repricing of wider breakevens would add
to the backup in long-end nominal yields. Domestic factors argue for higher
yields but we also acknowledge risks from global curve flattening and
flight-to-quality. If repo rates moved closer to 2.3% on a sustained basis then
this would also temper AU steepening pressures. We remain constructive on
inflation breakevens across the curve and further progress on inflation is a
precondition for any policy adjustment. The aggressive weakening of breakevens
that were triggered by February's global risk-off episode now appears overdone
especially in cross-market relativities (Chart 13). Inflation markets are
underpricing inflation risk as spare capacity is being absorbed and fiscal
policy is turning expansive. Currency pass-through from the weaker AUD has also
not been reflected in inflation markets."