Westpac On Negative RBA-Adjusted Net Supply Dynamics

Westpac note that there has been "negative net issuance of ACGBs in 2021, as the weekly purchases from the RBA have surpassed the amount borrowed by the AOFM via their regular tenders. Up until now, however, one could question whether it has had much impact on market pricing, given how steep curves are and how much higher yields are since the QE policy was enacted. While the counterfactual is unobservable, we would agree with the RBA's assessment that the policy has been worth around 30bp at the 10-Year maturity, as assessed by the performance of the AU-US 10-Year bond spread in the initial week's of the new policy. However, the narrative has shifted to these policies being a neutral overall given that it is in place to offset similar policies in other markets. Will that continue to be the case? We think that there is likely to be greater price tension created by these purchases in coming months, with the most obvious outcome a potential push below 0bp in the AU-US 10-Year spread."