J.P.Morgan note that "with front-end...>

AUSSIE BONDS: J.P.Morgan note that "with front-end rates pinned, one could argue

that ACGB 10-Year yield variance and ranges should be structurally narrower than

pre-COVID. Par models reveals this is only true, to the extent that one should

expect structurally flatter curves globally. The last 10 years of daily data

show a near perfect negative correlation between ACGB 10-Year yields'

sensitivity to the U.S. curve, and sensitivity to front-end rate levels. Thus,

almost all of the observed correlation between long-end spreads and front-end

spreads can also be represented by curve sensitivity, masquerading as policy

rate differentials. At current, fairly flat levels of the U.S. curve, ranges

should indeed be tighter than previously. But convexity in inputs remains: if

anything, data since March show directional sensitivity to the U.S. long end may

be even greater than previously, while still outperforming on sell-offs. At

present, 10-Year par ACGB yields are at the 47th percentile on a cross-market

basis (i.e. fair). By comparison, 10-Year EFP appears too low, even under more

hawkish fiscal assumptions."