Westpac: Fade Any Further Steepening Impulses

Westpac note that "with front end rates anchored it is no surprise the curve is led directionally by the long end and that recent higher yields have therefore produced some bear steepening of the curve. Despite U.S. yields being the highest since June, the Australian 10-30yr curve has pushed off its narrowest levels, maintaining its relative steepness but not has reached a new wide level since July's 30yr syndication. The U.S. curve is much closer to its steepest levels. That is a good indicator that the AU bond market has already made a significant concession to supply and that the yields offered remain attracted to global investors. Indeed, given that the total amount of bond issuance announced by the AOFM last week was at the lower end of expectations, there is an argument that the curve should flatten over coming months. Over the past month the AU 10-30yr curve is basically unchanged, despite a steepening in the U.S. Specifically, the AU curve did not react to global bear steepening. Over the past 3 months, the curve HAS bear steepened but only marginally. That gives us confidence that the demand equation for AU bonds will keep the curve from reaching new highs and we would recommend investors fade any further steepening impulses."