Wetspac suggest that "considering......>

AUSSIE BONDS: Wetspac suggest that "considering that there was a degree of risk

off behind the recent US Tsy rally, the fact that AU bonds didn't undergo a

slight underperformance is a good result. There has been slight underperformance

in some shorter tenor cross market spreads but with RBA exp. well-anchored, we

would not expect that to become a trend. Indeed, the current domestic economic &

policy outlook is unlikely to be revised much in the near term. They go on to

note that "the long end will be more highly correlated with global outcomes.

That puts the AU curve outlook in the unusual situation in which a Tsy-led rally

should usually see further curve flattening. But a flattener is against the

messaging of the recent Fed coms & in the absence of an idiosyncratic domestic

driver, which is not available at the moment, it is rare for the AU curve to

deviate from the directional shifts in the Tsy curve. So that should limit the

flattening trend to only a few basis points from here. For now we see the AU

3-10 Year futures spread as trading a 55-65bp range, although we think that

there will be more yield-related support to cap shifts beyond the upper end than

there will be steepening risk put to work at the lower range-bound."