Westpac note that "swap spreads........>

AUSSIE BONDS: Westpac note that "swap spreads across the term structure have

moved to all time record narrow, indeed inverse, levels. We want to focus on one

key aspect of price action - liability managers entering paid fixed swap

positions to hedge floating rate liabilities. In the first 3 months of 2020, as

wholesale rates plummeted in line with the RBA taking its cash target to the

effective lower bound, liability managers took the opportunity to enter more

hedges than the prev. 3 or 5 year avg levels. That makes clear sense from a

capital budgeting perspective. They did the same in May, after a hiatus in April

when market conditions were very fragile and uncertain. However in June, the

pay-side was again well below historical avgs. Why might that be the case? We

think there are three potential reasons. First those who needed to roll hedges

have already done so, second with BBSW below implied cash there is no incentive

to rush to fix rates, especially with the RBA on hold for the foreseeable

future. Third, given the current economic uncertainties overall business credit

is certainly not surging. All this suggests that there are few flows that will

offset receive-side carry-style positioning in swaps over coming months."