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AUSSIE BONDS: ###POV: AU/US 10-Yr spread set to remain in negative territory
The AU/US 10-Yr yield spread has found itself entrenched in -ve territory over
the last week, although the real yield differential has remained +ve. The
differential last sits at -11bp & there are several reasons why the spread
should continue to operate in -ve territory, at least in the short term:
- Aussie paper still offers a decent enough yield against the current global
backdrop, indeed, cover ratios at recent auctions have tended to be supportive.
Aus. 10-Yr yields appear attractive (FX hedged) for US & Japanese investors.
- The AOFM has completed ~75% of its gross funding requirement for this FY. This
puts it well ahead of schedule. Aus. semi-gov't agencies have also completed the
bulk of their issuance for this FY, although some suggest the remaining issuance
in this area could be focused on the longer end.
- The technical backdrop appears supportive for Aussie Bonds & price action
suggests that investors are not worried by the recent move into -ve territory.
- The RBA continues to adopt a steady hand, while Fed Chair Powell's recent
address looks to have opened up the possibility of 4 Fed hikes in 2018.
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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