### POV: AU/US 10-Year yield spread....>

AUSSIE BONDS: ### POV: AU/US 10-Year yield spread could be heading into negative

territory for the first time in 17 years.

- The AU/US 10-Year spread briefly touched 6.3bp overnight compared to a 2017

high of 59.2bp on September 20, spreads in the short-end have already inverted

with the yield differential up to the 5-Year sector now in negative territory

after 2-Year inverted earlier this week.  Markets are still mis-priced with the

Aussie slope steeper than the US. The factors driving the yield differential are

likely to continue, 10-Year sector is reflective of growth rates the Australian

economy faces significant headwinds but in the US growth is expected to rise as

monetary stimulus is gradually withdrawn.

- Australia typically reduces net issuance in December, and heavy reinvestment

flows are due to hit the market over the next 6 weeks, both supportive of

further upside in Aussie bonds. Meanwhile markets continue to price in a 90%

chance of another Fed hike in December and the FOMC's balance sheet unwind will

be bullish for Aussie bonds. Furthermore the carry and roll on long AU 10 v

short US 10 are still near the highest levles of 2017 at around 0.2.