### POV: RE-STEEPENING OF AUSTRALIAN...>

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.