Westpac: Where Are The Cross Market Opportunities?

Westpac note that "the re-pricing of RBA risks has fed through across the term structure and across both bonds and swaps, such that it is not just the benchmark AU/U.S. 10y-Year bond spread that is cheapening up to levels that are starting to look attractive (35-40bp)."

• "The best opportunity in bonds is in the 2-Year maturity, where the 3-month Z-score is 4.2. In the swap market, the best AU/U.S. narrowing opportunities are at the ultra-long end, while in forward space the 5y5y has underperformed by 3.2 standard deviations relative to its 3-month average and is at the high over the observed period."
• "However, Australia is not just cheap against the U.S., but against most core and peripheral developed market economies. So we would expect that to be on the radar of global investors, especially if the RBA provides the circumstances where they are attracted by the highest yields since 2019. While not a central theme, AU bonds could also benefit from those betting that the current optimism around the growth rebound will unwind as China slows."