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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."