Westpac note that "AU Bonds continue...>

AUSSIE BONDS: Westpac note that "AU Bonds continue to behave consistently.

Specifically, divergent monetary policy has allowed AU bonds to outperform on

US-led selloffs & not underperform significantly during rallying episodes. We

recommend maintaining some portfolio exposure to this sort of price action.

While we see little reason for the market to re-evaluate its 12 month forward

RBA policy profile (around 50% of a 25bp hike by the end of 2019), that depends

crucially on how the Bank interprets last week's shift in the unemployment rate

to 5% & how next week's quarterly CPI influences their thinking. We will

potentially get some insights into their post-Labour Report thinking in speeches

this week by RBA Dep Gov Debelle & Assistant Govs Bullock and Boulton. The

other, potentially seismic, shift in Australian risk rewards is the fall-out

from Saturday's by-election. Given that one major influence on AU bond

outperformance has been ongoing non-resident investor support, we will be

closely monitoring the extent to which this may have a -ve impact on future

demand. In our view the impact on bonds will not be material & we continue to

expect short maturities to remain range-bound & the curve to flatten over time."