J.P.Morgan: Only A Few Bp Of Risk On The Table At Budget

J.P.Morgan note that "next week in Australia brings an RBA decision, and the postponed Commonwealth Budget. Recent back-pedaling by those calling for RBA easing in October has not resulted in any particularly broad repricing across the curve. Still, if there is going to be at least a one month lag between next week's fiscal easing, and a possible central bank backstop via more overt quantity-targeted asset purchases, the market may question the supply-demand balance for bonds. In the face of an enormous downturn and deleveraging dynamic, there are no crowding out effects, and bond supply creates its own demand. So this year we have been fading the significance of fiscal settings (and lack of explicit RBA support for the long-end), as they relate to bond valuation. The evidence continues to support that conclusion. We nevertheless estimate the upper bounds on the effect of both bond supply and QE separately, in case they have been coincidentally offsetting so far. We estimate the maximum effect of this year's debt increase and offsetting expansion of the RBA balance sheet to be 10-15bp on 10Y par yields, which leaves only a few bp of risk on the table from the plausible scale of fiscal measures on the table next week."