VIEW: Thursday saw CBA note that "if the RBA....>

RBA: VIEW: Thursday saw CBA note that "if the RBA does to decide to buy (ACGBs)

again - we exp. only a relatively small amount, maybe $A2-3bn. Once market sees

that the RBA has been roused to action again we doubt there'll be much of a

fight. The yields are likely to correct lower almost immediately, even if the

volume of RBA buying is not sufficient to "cause" the movement. It will be much

more about the signal... But we don't actually think such a move will be

necessary. To understand why, we need to point out that there is a small

internal contradiction in the RBA's set of policies. The inconsistency is minor,

but does partially explain why the RBA is using guidance of "around 0.25%"

rather than more specific language. This inconsistency is one reason why "around

0.25%" has meant, in practice, something a little higher than 0.25% for the 3Y

bond. The 3Y ACGB is nearly risk free. But it is wrong to say that there is no

spread involved in an ACGB. 3Y OIS can/does trade at a different yield to the 3Y

ACGB. This creates a small bond/OIS basis. The RBA cannot simultaneously set the

cash rate (0.25%), exp. future cash rate (also 0.25%) & the 3Y ACGB (also 0.25%)

without also setting the relativity between the 3Y OIS & ACGB."