Time To Enter Cross Market Narrowers

Westpac note that "the U.S. MOVE index moved back off a 19-month high following last week's FOMC. On two prior occasions in 2021 turning points in 10-Year yields have corresponded with first a peak in volatility and then a return to more "normal" levels. Given the rally in 10-Year yields on Thursday and Friday, despite the confirmation of a taper, does this suggest that yields are potentially going to fall further? Certainly, the aim of the central bank and its messaging was to take some of the debate out of price action."

• "So, what would a consolidation of yields around current levels mean for the AU/U.S. 10-Year bond spread? Over long periods, a higher U.S. yield has meant a narrower spread, and vice versa. However, while we are in a broad range trade, as we have been recently, the relationship is less clear. Even so, the current spread level is cheap relative to history, and should calmer markets equate to more liquidity, we suspect that Australian 10-Year bonds will eventually be seen as attractive at current levels."
• Note that Westpac hold an AU/U.S. 10-Year yield narrower (entered at 35bp, with a target of 15bp).