Westpac write "the market followed.....>

AUSSIE BONDS: Westpac write "the market followed risk-negative trade

developments and a mixed bag US job reports with a strong bid tone. We have been

surprised by the strength but do point out that the delivery of a near term rate

cut would make them still appear "cheap", especially if the view grows that the

RBA will have to move the cash rate below 1%. So continue to buy dips. Will the

curve shift significantly in coming days? Should the RBA deliver a cut at

Tuesday's meeting, we expect the curve to steepen to around 55bp. No cut is

likely to see the curve sub-50, driven by 3yr sell-off. It is too early for a

shift steeper on our RBA view, fade offshore led steepeners above 50bp. 5y5y BEI

has bounced off record levels, but remains cheap. Should the RBA deliver a rate

cut, we expect to see some rally in BEI while remaining on hold would have the

opposite effect. It too early to buy BEIs, however it would provide good

participation in any global outright sell-off. The AU-US 10yr bond spread

reached a fresh record inversion of -78bp. With RBA rate cuts expected in August

and November, there are reasons for the spread to continue to perform."