Westpac note that with "while there....>

AUSSIE BONDS: Westpac note that with "while there has been some significant

recent volatility in the 2-5-10yr butterfly despite the broader 2-10yr curve

being well contained, the butterfly is now at average levels seen over the past

18 months. Looking at the Nelson-Seigel-Svennson modelling of the term

structure, however suggests that it is the 4yr and 5yr maturities that are

currently cheapest. Given that the RBA has previously demonstrated that it sees

bonds out to 10yr as a target, that might encourage some demand for these

maturities. While it is still sometime away, the ASX's introduction of a 5yr

bond futures contract in December will presumably alter the risk rewards in the

5-7yr maturities, presumably removing some of their traditional trading

characteristics, such that cheapness will be quickly unwound."