Westpac Remain Better Buyers On Dips

Westpac note that "Australian 10yr yields have fallen over 10bp in the past week and have moved below both their 50 day and 100 day moving averages. From a technical perspective that is a bullish set-up and suggests that yields are likely to move lower in coming sessions and we would argue the same from a fundamental standpoint. There are a number of drivers of the recent move, including a break in ACGB supply (the AOFM issued just $2bn last week), though the biggest drivers are those from offshore including vaccine setbacks, resurgent hard Brexit risks, ongoing erosion in US-Sino relations and equity market volatility. Those market drivers will remain important, with varying degrees of focus, however the other major influence will be the evolution in Fed policy options. They will be in play this week. FOMC projections on Wednesday may reveal a less dire 2020 GDP and unemployment scenario - they were more pessimistic than the market mid-June and the rebound since has surprised on the upside. But the Fed will continue to harbour concern about reduced fiscal support and flexible average inflation targeting will in any case cement the median dots at the lower bound through end-2023. Powell may even flag the prospect for opportunistic reflation, i.e. upping the QE pace if inflation shortfalls persist in coming months. That should keep the bid tone in US Tsy markets which, given the stickiness of the AU-US 10yr spread, should keep downside risk in Australian yields. We remain better buyers on dips than sellers on rallies."