Westpac write that "divergent..........>

AUSSIE BONDS: Westpac write that "divergent monetary policy has been the major

driver of AU bond outperformance over recent years, with the Fed hiking and the

RBA either cutting or keeping rates on hold. This divergence remains the

dominant thematic, with Westpac continuing to expect stable rates in Australia

through 2020 while forecasting the Fed to deliver another 4 rate hikes. While

that view reflects the profile of the Fed's median "dot plot" for 2019, not

currently reflected in the 1yr forward AU-US cash spread. Should our forecasts

prevail, this strong relationship suggests that the spread will move to at least

-63bp in coming months. The spread has widened off its most narrow levels so,

now is an opportunity to re-set narrowers. Indeed, while AU bonds have

characteristically underperformed during the most recent UST rally, the spread

has in our view behaved quite well and in line with traditional relationships.

The trade is supported by relative supply trajectories throughout 2019 and by

any material correction to the AUD, which we expect, should also be supportive

for AU outperformance."