Westpac note that "Australian bonds....>

AUSSIE BONDS: Westpac note that "Australian bonds underperformed their US

counterparts over the past week. Far from reflecting a shift in investor

expectations, however, that is the typical outcome in a UST-led rally. Indeed,

despite the underperformance, at -25bp, the AU-US 10yr bond spread remains well

within recent ranges. So where to from here? The central point remains that,

with the RBA on hold for the foreseeable future, policy expectations will remain

anchored and have a similar impact further out the curve. So any major

directional shifts or trends will largely reflect the influence of USTs. In term

of the spread, the -30bp level has held and now we are testing the upper end of

the range. I would see that as in the -20 to -15bp range as most. In terms of

outright direction, the 3yr futures remain relatively elevated and will continue

to remain so for now, with support in the low 97.90s. The 3-10yr futures spread

is flirting with breaking narrower, with the 49-50 region being solidly tested

over the past week. Our expectation is that we will be moving toward 45bp in

coming trading sessions."