Westpac note that "last week, US.......>

AUSSIE BONDS: Westpac note that "last week, US 10yr bond yields eked out a 6.4bp

range which is well below avg. even for July (11.8bp). Presumably the holiday

season in the northern hemisphere has much to do with price action. However, we

also believe it is a function of the COVID uncertainty & strong Fed messaging

ensuring "lower for longer" as a minimum ongoing policy action. We see little

reason for US yields to break out of their very narrow ranges anytime soon. That

will influence ACGB yields, however, the domestic supply overhang has started to

push the 3yr ACGB yield away from the RBA's 0.25% target level. That has brought

into question just how far the RBA will let the 3yr maturity drift away from its

target level & whether it will soon undertake its first asset purchases since

May 6. The last time 3yr yields drifted higher, in June, it was led largely by

higher US 10yr bond yield and, indeed, it was the UST price action that led the

3yr bond yield back towards target. That does not appear to be the case this

time around. So a move thru 0.30% would certainly keep investors focused on the

RBA's potential behaviour, although they would presumably be less urgent in

their endeavours if USTs lead the market lower once more."