Westpac write "this week's.............>

AUSSIE BONDS: Westpac write "this week's employment data has the potential to

re-price AU rates markets. If the strength in the labour market continues it

will put in jeopardy our house view that the RBA is likely to shift to an easing

bias at its next Board meeting. We think the market is trading as if it is a

little long, so we are cautious about holding risk over the number, despite our

view that the unemployment rate should rise to 5.1%. We would reduce outright

risk ahead of the Labour Report but will continue to be better buyers on dips.

US 10yr yields should not move through 2.62-63% on any further bearish

correction, which will help define the entry level on tactical longs in AU.

Could the curve further bear steepen? We think it could but only marginally

given that any bearish impulses could initially be felt across the term

structure as a result of valuation extremes. Ultra-long government bonds (33s

through 41s) continue to offer historically high carry and roll, which may

encourage 10s30s curve flattening. The 3-10yr futures spread is not expected to

sustain any real steepening influence. Fade offshore led steepeners above 50bp.

It is too early for a shift steeper on our RBA view."