Several houses look for tightening.....>

AUSSIE BONDS: Several houses look for tightening of the AU/U.S. 10-Year yield

spread in their 2020 trade recommendations in recent days:

- RBC: "As '20 unfolds & the RBA moves further into uncharted territory the QE

discussion will likely intensify. Base case remains for a cut to 25bp in early

'21 accompanied by the announcement of QE concentrated in a minimum A$40bn of

ACGBs, mkts are likely to move well ahead of any such shift. Exp. the 10y

AU/U.S. spread to move into a new -80/-100bp range in H220 with further

compression in '21 as policy divergence emerges with the Fed beginning to lift

Fed Funds." N.B. they entered a tightener at -63.5bp in early Nov.

- JPM: "AU 10s look cheap vs. fundamentals, and AU 10s have under-performed on

the most recent sell-off. Targeting the 10Y spread to move more -ve over the

course of '20. We thus recommend receiving AU 10s vs. US 10s at -66bp"

- Westpac look to enter at -55bp, target of -95bp, stop at -40bp. They believe

that RBA "QE & an extended Fed cycle means that the spread will trade rich to

its traditional relationship with cash diffs. It will also benefit from an

insufficient fiscal response as the econ weakens."