NAB: 10s Starting To Offer Relative Value

NAB note that "the expectation of RBA QE created Aussie bond out-performance but the delivery of it has not. Recent under-performance has taken the AU 10 year bond back to levels that offer value In anticipation of the RBA easing monetary policy further at its November meeting (most importantly announcing a QE program) there was a reasonable amount of out-performance by Australian bond yields (AU-US 10-year bond differential narrowing from circa +20bps to a low of near -15bps). However, since the RBA has begun the QE program we have seen a gradual under-performance of Aussie bonds and overnight the AU-US 10y bond differential has widened another few basis points to +2.5bps. Without negative rates on the table any RBA QE will probably struggle to take 10Y ACGB-UST sustainably through -10bp. We look to actively trade a -15bp to +5bp range and so at current levels the AU 10-year bond is starting to offer value."