Westpac expect US price action to......>

AUSSIE BONDS: Westpac expect US price action to dominate AU bonds this week, as

there is little in terms of market moving data. Last week's wages & labour

reports have consolidated the consensus of an RBA on hold for the foreseeable.

So we do not expect Lowe's speech later this week to the Australia-China

Relations Institute to alter market valuations in any material way.

- With the RBA sidelined, Westpac look to the beta between US price action and

AU market outcomes. "The benchmark AU/US 10-Year spread has been relatively

stable of recent weeks, and we would expect that to be the case for now. However

in our view the risk rewards still favour further outperformance in coming

months, especially if a more hawkish Fed outlook becomes entrenched into

expectations," write Westpac. Westpac are focused on "3-Year Bond futures near

the lows of our broad 97.70-98.05 exp. range. Indeed, the last time these levels

were reached it was during the period in which 3-Month BBBSW was surging higher.

The rateset is now 15bp off the highs, so support should be more forthcoming.

Given front end support & a more bearish US backdrop impacting the long end, we

can see the 3-10 Year futures spread moving into the 65-70bp range this week."