On Tuesday UBS recommended ACGB........>

AUSSIE BONDS: On Tuesday UBS recommended ACGB 3s10s flatteners, based on Dec21s

and April27s, with an entry level of 44bp, targeting 25bp & a stop at 60bp.

- UBS think that "the recent global bond market tumult on the back of concerns

over Italian fiscal sustainability is likely to wane allowing policy gradual

normalisation to continue. In this context, we review the factors affecting the

Australian rates market: global growth, the domestic outlook and current RBA

pricing. In short, the market prices RBA policy below already subdued consensus

expectations, translating into a relatively steep Australian yield curve

relative to foreign counterparts. We recommend 3s10s curve flatteners in

Australia on the view that a recovery in global growth from the soft patch in Q1

can push up rates at the front end of the Australian curve, but the relative

attractiveness of the long end of the Australian curve will likely keep 10-Year

yields relatively anchored. In particular, Australian bonds are attractive to

Japanese investors on a currency hedged basis. We think the 3s10s curve can

flatten another 30-40bp."