On Wednesday CBA wrote "we would.......>

AUSSIE BONDS: On Wednesday CBA wrote "we would move to sell the May IB and buy

the August IB at the current spread of 20bp. If the RBA does cut rates in May,

the likelihood is that the August IB immediately moves to price a second rate

cut, either in an intervening month (June, July) or in August itself. So while a

rate cut in August triggers a 14bp loss on the May IB, it would probably trigger

a 20bp, or more, gain on the August position. In contrast, if the RBA doesn't

cut rates in May, it's probable that nothing they say will be enough to remove

the current rate cut pricing. The absolute best outcome for the trade would be

for the RBA to leave rates unchanged but adopt an explicit easing bias in May.

That is, the green-highlights in the Table 1 below. That's not a likely outcome,

but it does seem to be a clear risk at present. The trade performs fairly well

in the most likely scenarios, with one clear exception -no change in rates at

all. Our most likely scenario is that there won't be a move in either May or

August. However, we want to set an insurance trade. In this instance, we'd look

to exit the trade should the RBA not cut rates in May."