NAB Look To Carry And Index Extensions In The Index-Linked Space

NAB note that "breakevens globally have done well over the past month, led by the US, where real yields have been driven to record negative levels. Australian real yields are back near pre-COVID levels too. In the US, breakeven performance seems to be underpinned by expectations that the FOMC could switch to an average inflation target, explicitly allowing inflation to run "hot". In Australia, the RBA is unlikely to be so aggressive and the scope for AUD breakeven performance may be more limited. There are two technical factors to watch for in the next couple of months. Firstly, September coupon bonds will have better carry over the next month because the indexation of the negative Q2 CPI print starts later. Secondly, indices lengthened appreciably when the end-July rebalancing removed the Aug-20 from 0+ indices. When the Sep-30 enters the 0-10Y index at the end of September there will be another extension of nearly 1.0."