Westpac On ACGB Dynamics Surrounding Basket Inclusion

Westpac remind us that "basket bonds are changing for the September futures contracts. The 3-Year has a bond leave the basket (Apr-23) and one enter it (Nov-25), the 5-Year sees the Nov-25 leave and the Nov-27 enter, while the 10-Year basket is shortened from 5 bonds to 4, with the May-30 leaving. At the 3-Year, the message is that the outgoing bond does cheapen up in the months ahead of their last involvement in the basket and those that are entering do become more expensive. So that suggests that the Nov-25 might be set for some performance, however given that it was in the 5-year basket the conclusion may no longer be as valid. For 10-Year bonds, there is little evidence that the bond leaving the basket currently is likely to cheapen up, perhaps because of QE purchases, although historically, there was only a marginal likelihood prior to QE being introduced."