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(M2) Correction Extends


Late Session Rebound


(M2) Corrective Cycle Remains In Play


(M2) Gains Still Considered Corrective

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AUSSIE BONDS: Westpac note that "AU bonds have generally outperformed during
bearish UST moves. That was evident again last week, as the benchmark AU-US 10yr
bond spread moved toward -50bp for the first time in more than 3 decades.
However, the spread has narrowed rapidly and might be due for a correction near
term. Indeed, we saw some profit-taking on AU outperformance trades toward the
end of last week. A correction would be supported by our view that enough has
been priced-in for the Fed & that US 10yr yields have shifted sufficiently to
reflect that expectation. Medium term, we exp. the usual AU-US relationship to
continue & will still be looking to fade any sustained AU underperformance. That
will be supported by the AUD looking relatively cheap on a number of crosses,
most important vs. Yen. If that were to emerge, then we would also expect the AU
3-10yr futures spread to flatten back in to the old 50-60bp trading range.
Outside of offshore support, a period of consolidation and range-trading has
also seen the curve flatten in the past. From an outright perspective, we see
3yr futures as just a touch above midrange, with selling likely above 97.95.
10yr futures have exhibited very solid support around 97.20."
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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