UBS have added an ACGB 3s10s...........>

AUSSIE BONDS: UBS have added an ACGB 3s10s flattener as part of their top macro

trades for H218 "given Australia's leverage to global growth, a recovery in

global growth expectations from the soft patch in Q1 can push up rates at the

front end of the curve. Indeed, Australian front-end rates have shown increased

correlation with global front-end yields. At the same time, the relative

attractiveness of the long end should keep 10-year yields relatively anchored.

Long-end Aussie yields are close to the level implied by nominal GDP growth, and

Australian bonds are attractive to Japanese investors on a currency-hedged

basis. For Japanese-domiciled investors, Australian 10-year rates are 5-10bp

more attractive than UST yields on a currency-hedged basis. Given relatively low

Japanese yields, this is a decent yield pick-up for Japanese investors. We think

the 3s10s curve can flatten another 30-40bp."