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AUSSIE BONDS: On Thursday TD Securities noted that "10-Year ACGBs traded briefly
below 2.50% last month, but the move was reversed just as quickly. Following
this month's sell off, we expect AU bonds to stage a near term rally. Our
conviction levels on the magnitude of a rally are not high so we are loathe to
chase the move. Should 10-Year ACGBs rally towards 2.50%, our bias would be to
fade the move. The Australian 10-Year term premium is skating near record lows
and our conviction that -1% could represent the secular low supports 10-Year
ACGB yields basing around 2.50%. Historically lows in term premium near -1% have
coincided with lows in nominal bond yields. A catalyst for even a mild reversal
of Australian term premium from deeply negative territory is the removal of
liquidity and monetary policy accommodation that is likely to gather pace from
next quarter. With 2.50% defining the likely low in bond yields, the yield
topside appears to be capped at 3% on fundamentals and technicals. Should term
premium be unwound it would support a steeper ACGB curve. Our 3s10s curve model
is currently at fair but technicals suggest scope for another 10bps of