On Thursday TD Securities noted that...>

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

steepening."