Westpac suggest that "Australian.......>

AUSSIE BONDS: Westpac suggest that "Australian bonds will remain sensitive to

U.S. outcomes, as ever, especially as there are few domestic risk events to

drive price action this week. Both 3-Year & 10-Year bond futures prices have

bounced off their lows, but continue to trade very heavily. With the RBA still

on hold for the foreseeable future, 3-Year valuations shouldn't get too far out

of line, and with the "turn" for September quarter-end not likely to shift short

end funding spreads much, we would expect that there would be ongoing support at

or near the lows. 10-Year bonds are a more difficult valuation proposition, but

should not move into a new trading range. We continue to expect the 3-/10-Year

curve to remain in the 50-60bp range, so that should limit further 10-Year

underperformance. The AU/U.S. 10-Year bond spread is consolidating new levels,

having shifted from a -25bp to a -35bp locus. Near term price action in the

spread will be led by Fed rhetoric more than domestic fundamentals. A more

hawkish Fed than we expect would see the spread move further inverse."