HALISTER1: Bet on Steeper Australia Yield Curve on Supply Outlook, ANZ Says

Bet on Steeper Australia Yield Curve on Supply Outlook, ANZ Says

(Bloomberg) -- ANZ recommends buying Australia’s November 2028 govt note and simultaneously selling March 2047 bond at a spread of 86bps, senior rates strategist Martin Whetton writes in note Wednesday.
  • Targets spread of 125bps with stop-loss at 70bps
    • One of the key features of Australia’s 2017-18 budget that’s due for release next week will be a shift in the narrative of good debt and bad debt, with an eye to use debt to fund infrastructure: Whetton
    • Given this, risk to issuance will be to the upside and increasingly toward longer-tenor bonds
    • Office of Financial Management has already flagged its intention to issue into the long end of the curve via syndicated taps
    • RBA is looking to modestly lift its outlook for headline inflation, which would bolster a steepening trade
    • ANZ would expect to see U.S. Treasury increase issuance of 30 year bonds, which would steepen U.S. curve. Australia’s high correlation to U.S. would impact the ACGB curve

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Martin Whetton (Australia & New Zealand Banking Group Ltd)

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