Free Trial

Westpac Still See Some Scope For 10-Year EFP Widening

AUSSIE SWAPS

Westpac note that "given that the RBA will extend its QE in 2021, the physical bond market should be anchored at this maturity in both outright and curve terms. In addition, with positive vaccine news, and the potential for further stimulus packages to support the global economy, 2021 is expected to be dominated by a bear steepening thematic. In our view the swap curve will be better positioned to reflect these global risk rewards and as such the 10yr EFP should keep widening. Of course, we live in a yield-reduced world and, with central banks taking the volatility out of funding rates, carry-related trades are likely to remain in vogue for some time. At the moment that favours the longer maturities, so we would think that any swap spread widening will be capped for now. Our best "guess" is around 5bp at most. The 3-10yr box is already back to its steepest levels since the pandemic began and, if the rise in yields slows, then there is scope for some tactical receive-side to slow the near term widening."

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.