Westpac note that "Australian bonds....>

AUSSIE BONDS: Westpac note that "Australian bonds have taken the US lead and

begun the week trading relatively heavily. Whether or not that becomes the theme

of the week depends largely on the outcome of the CPI on Wednesday. We see

market risk rewards as skewed around that outcome toward the bear side,

especially given expectations of a benign outcome. Even so, we would not expect

a major revaluation of AU bonds outside of their recent trading ranges. The most

vulnerable would be the 10yr futures, where the 97.30 level is an important

technical support and could be influenced by US 10yr yields over coming days.

Current cross market relativities will remain while the RBA remains on hold and

the extent of the Fed's ongoing rate hike cycle remains open for debate. It will

take a more hawkish market outlook to push the AU-US 10yr bond spread narrower,

but there is no reason to expect any spread widening, should it occur, to be

anything but short-lived and seen as an opportunity."