Westpac note that "in our view it is...>

AUSSIE BONDS: Westpac note that "in our view it is unlikely that Q3 CPI will

shift market RBA exp. significantly. We exp. both headline & core CPI to remain

at or below the bottom of the target band. It is this quiescent inflation

outlook that underpins the market pricing of just below 50% of a 25bp hike by

the RBA by end-'19 and our view that the RBA will remain on hold throughout the

remainder of '18, during '19 & in '20. These exp., however, skew market risk

rewards around the CPI release. That assessment skews outright risk decisions

this week toward bearish outcomes. We have consistently stated that 3yr bond

futures will maintain a 97.70 to 98.05 range for now. Recent bullish momentum

has pushed us to the upper end of the range, so we would at least be reducing

the size of any longs off current levels. The curve has bull flattened back into

the 50-60bp range. That is as expected, however, its response to an upside CPI

surprise is less clear at current levels. Even so, we favour a move to the

bottom of the range. The AU outperformance dynamic remains well in play, with

the 5y5y swap at new extended levels versus a number of markets. Maintain these

exposures."