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AUSSIE BONDS: ### POV: RE-STEEPENING OF AUSTRALIAN CURVE DOESN'T REPRESENT
RETURN OF TERM PREMIUM
Funding pressures as measured via the BBSW fix and repo rates have stabilised
for now. This, coupled with the RBA being well & truly on hold, is anchoring
Aussie 3-Year Bonds, while the uptick in US yields is allowing the longer end of
the Aussie curve to soften.
- The Aussie 3-/10-Year yield differential sits at 61.8bp, ~17bp off the early
April lows, with a swift uptick noted over the last week. The move is largely a
function of the aforementioned spillover from the longer end of the US curve.
- The Aussie 10-Year's sensitivity to US yields has diminished in the current
cycle when compared to previous instances (as is evident with the market's
comfort in the AU/US 10-Year spread operating at a discount).
- Of course any hawkish murmurings from the RBA or signs of inflation/wage
growth would limit the scope for further steepening (there are slim chances of
this at present). The 3.00% US 10-Year yield level & its ability to anchor
yields will likely be the key ST driver for the steepness of the Aussie curve.