VIEW: RBC note that "while it was not...........>

RBA: VIEW: RBC note that "while it was not especially surprising that the Gov.

refused to put a level/number that would prompt buying, we were a little puzzled

by the answer that its action for YCC would also be a function of market

conditions. We think this muddies the YCC/0.25% target on 3y yields... The 0.25%

target is clear and central to the set of unconventional measures. 3y yields

tested just above 0.28% last week, prompting some discussion of where the line

in the sand is for this very clear objective of monetary policy. The Governor's

suggestion that market functioning is also a key consideration waters down the

target in our view. If 3y yields grind higher in an orderly fashion to well

above 0.25% (e.g., 0.30-0.35%), does that mean the RBA will not step up and buy

to ensure the nominated target, with implications for broader borrowing costs

and the transmission through to the real economy? We suspect not, but the

discussion today has added some confusion to this aspect of the RBA's

unconventional monetary policy measures and may well raise some questions around

the credibility of YCC. It will be interesting to see whether the bond market

tries to test the RBA's resolve at some point."