Westpac: Steepness Of Curves Provides Opportunity

Westpac note that "having widened back above 0bp, 3-Year swap EFPs have been moving sideways in recent weeks, as carry-related receive-side flows have capped both spreads and outright swap rates. We expect that to remain the case for now, especially as the 1-month carry and roll remains very attractive, especially in the 2- and 3-Year forward space. We took profit on our 2037 liability swap position a few weeks back, but the spreads have now re-widened to be at, or close to, the widest levels in 6 months. We continue to think that is an opportunity. Again, it is supported by a range-trading outright that encourages yield enhancement flows into the Aussie market. The recent moves have probably also been supported by expectations of a slower issuance profile, which is likely to be reinforced by the Federal Budget, to be announced on May 11. We would agree that the forward borrowing requirement is likely to be reduced, and also that the ongoing RBA QE in the 5- to 10-Year maturities will continue to push investors out along the curve, however, we think that the recent upper end of the range should hold on these ASWs."