Westpac Identify Some Value In Holding BEIs

Westpac compare 2025 BEI to the implied 5-Year BEI out of the 2030, 2035 and 2040 maturity dates. “As expected, the 5-Year gaps show a tendency to converge toward 2.50% (the middle of the RBA’s 2-3% target range), however the 2025/2030 spread has turned lower and is now below 1%.”

• “In our view, and with reference to the recent past, having a “1-handle” on inflation between now and 2030 for a sufficiently long period to reflect this pricing, would seem like a very optimistic outcome (or perhaps a very bleak view of the future if one wishes to express it that way)!”
• “That suggests that there is still value in owning BEIs out of the first two ACGB indexed-linked bonds. The carry is attractive over the next 6 months on both of these positions, although the CGL0925 has the best running yield characteristics, as has been the case for some time.”