Westpac: Reset AU-U.S. 10-Year Bond Spread Narrowers

Westpac recommend buying ACGB 1.50% Jun '31 vs. selling UST 1.125% Feb '31 at 12bp, targeting a move to 0bp, with a stop at 15bp. They note that "we are in a consolidation phase for global bonds, so yields are set to range-trade. That is a positive precursor to Australian outperformance as yield enhancement trades become more popular. The ACGB demand-supply imbalance is set to continue, with issuance falling and the RBA maintaining bond purchases at their current rate. Outside of the pocket of illiquidity that saw Australian bonds collapse at the end of February, the 12-15bp range has been an excellent entry zone since RBA QE was introduced."