Westpac note that "one of the..........>

AUSSIE BONDS: Westpac note that "one of the reasons we went through the

corporate pay-side flows in such depth was to help build a case for swap spread

performance over coming weeks. Swap spreads across the term structure are not

only inverse but are at their extremes. There are a no. of reasons why that is

the case. 1st of all is RBA action keeping sig. liquidity in the system, which

has reduced risk-free rates & key wholesale b'marks. That situation will not

change anytime soon, as confirmed by RBA Deputy Gov. Debelle in a speech last

week. In addition, the AOFM has embarked on a very large bond issuance

programme, which at a macro level should have a narrowing impact on spreads

across the curve, particularly at the long end. Over the past 3 months the main

driver of spread performance has been falling wholesale swap rates, not rising

bond yields. While we think that will not be as large a driver over the next 3

months, there is also few reasons for swap rates to bearishly correct higher

either. There are no large-scale project flows or hedging flows on structured

products to provide a near term catalyst. So that perhaps puts such things as

cross market relative value as the major determinant of swap flows near term."