###POV: AU/US 10-Yr spread set to......>

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.