Westpac write "3yr yields have moved...>

AUSSIE BONDS: Westpac write "3yr yields have moved further through cash & 10yr

bond yields have recorded their lowest ever levels. There is a full 25bp rate

cut factored-in for August & almost another cut expected in the 6 months beyond.

Those valuations were consolidated during a week that the unemployment rate fell

< 5%. So there is clearly a powerful tailwind behind exp. for lower rates,

however, we think we need to be careful interpreting some of last week's price

action e.g. a sig. catalyst for the front-end was covering of shorts from those

that had been holding speculative positions based on exp. of a March turn. One

of the reasons behind that position covering was the RBA Minutes. Specifically,

the market focused on line that detailed a presentation on repo & FX swaps

markets. That was seen by some as the initial signal that the RBA are prepared

to undertake measures to reduce funding pressures on banks ahead of delivering

rate cuts later in the year. Near term valuations will be dominated by U.S.

outcomes. Medium term, despite having ~2 rate cuts in the forward profile, we

think there is scope for 3yr bonds to rally. That would be supported by the view

that global yields will remain lower for longer, with inflation exp. minimal."