Westpac writes "the market followed....>

AUSSIE BONDS: Westpac writes "the market followed Q1 CPI 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. We remain better tactical buyers on dips. US Q4 GDP confirms that US 10yr

yields should not move through 2.62-63% on any further bearish correction, which

will help define the entry level on 10yr Futures Price 98.19 u p tactical longs

in AU. Will the curve shift significantly in coming days? While a bear

steepener, led by the US is possible we think it would be only marginal given

that any bearish impulses could initially be felt across the term structure as a

result of valuation extremes. A bull flattener will be similarly affected. 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. Following AU Q1 CPI, the AU-US 10yr bond spread reached a fresh

record inversion of -73bp."