Fixed Income: Weekly Strategy - CommBank · PDF fileAustralian curve is starting to realise...

Fixed Income: Weekly Strategy 23 August 2011

Philip Brown Quantitative Strategist T. +612 9118 1090 E. [email protected] Adam Donaldson Head of Debt Research T. +612 9118 1095 E. [email protected] Alex Stanley Associate Analyst, Fixed Income T. +612 9118 1125 E. [email protected]

Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and atwww.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

Reassessing BBSW as Europe Sovereign Risks Spread to Banks

The European Sovereign crisis is now impacting on European banks.

The Australian BBSW ratesets include BNP Paribas (a French bank) and so have been affected too.

The market continues to price a very dovish RBA, but, in a remarkable contrast, a hawkish RBNZ. We move to implement a 1Y swap spread widener

The current bout of financial volatility moved from into a new– and disquieting - sphere last week. European banks came under sustained selling pressure as equity markets fell significantly around the world. Short term borrowing costs rose, too.

The rally in US rates continued, though it does appear to be slowing down. The 10Y rate dropped by 15bp, to 2.11 while the 2Y actually rose by 1bp, to 0.20%. Having spiked higher last Monday, Australian rates have dropped significantly this week. The 3Y rate has fallen 26bp to 3.65%, while the 10Y yield has fallen 22.5bp to 4.325%.

The European sovereign issue has now spread well beyond European Sovereigns. The European banking system is looking jittery (particularly bank shares). The funding costs for banks in Euros are rising, but not too sharply, just yet. Australian bank funding costs have been rising too. Philip Brown explains the links between European and Australian banks in his article on page 3.

The major rally in Australia has had one exception – the very front end. The 3M OIS rate has rallied, but only by 6bp. The very front of the Australian curve is starting to realise that unless the RBA starts cutting rates almost immediately, front end yields in Australia are too low. Alex Stanley covers this topic when he compares Australian and NZ front-ends in his article on page 8.

The spread widening trade that Alex recommends will be sensitive to RBA policy views. In Australia, the Central Banks speakers are the main highlights of the week. Deputy Governor Ric Battellino is speaking on Tuesday morning. Governor Glenn Stevens is appearing before the House Committee on Economics on Friday

This week the bond market will likely be focussed on the European Sovereign debt situation rather than the economic data. The ECB purchased €14.3b last night, down from €22bn last week. The ZEW survey, a measure of economic confidence in both Germany and the Eurozone more broadly, will be released on Tuesday night.

In the US, the main data releases are the New Home Sales (Tuesday night) and the University of Michigan confidence survey on Friday night, though the second reading of US GDP (also on Friday night) will be worth a look, too. The Jackson Hole conference of Central Banks will be held over the coming weekend. Indications of whether, or how, QE3 will be implemented are the main focus.

Contents:

Key Positions......................................................................... 2 Key Trades ............................................................................ 2 The Lonely Bond Analyst’s Guide to European Bank Risk and Australian Money Markets ..................................... 3 Positioning for a wider 1Y AUD-NZD swap spread ................ 8 Key Views............................................................................ 11 CBA Forecasts: .................................................................... 13 Calendar – August 2011 ...................................................... 14

3M bank bill to OIS spreads are widening

Source: Bloomberg, CBA

0

10

20

30

40

50

60

70

80

Jan-11 Mar-11 May-11 Jul-11

AUD NZD USD

EUR GBP

bp

Global Markets Research

Fixed Income: Weekly Strategy

2

Key Positions

We have taken a small profit on the September Bills/OIS contraction trade because this spread is exposed to further surprises in the European banking system.

With RBA speakers in the spotlight and the market pricing significant rate cuts, we remain comfortable with our paid OIS position, despite the move against us. An alternative attractive option, with positive carry, is to pay 1Y AUD swap against the NZD swap.

Key Trades

Trade Entry Curent Profit Target Stop Comment Sell the KfW Dec-19 against the IBRD Oct-19

22bp (30-May-11)

21bp -1bp 40bp 15bp Hold: Despite the growing concern in Europe, there has not been any movement in the basis or in the credit spread.

Sell the EFP box trade (3Y to widen, 10Y to tighten)

25bp (5-jul-11)

20bp +5bp 15bp 30bp Hold: 3Y EFP has been volatile. Should widen if concerns persist.

Buy a 3M ATM option on the ACGB Jun-14 against selling a 3M ATMF receiver on the 3Y AUD swap. (Conditional bull spread widener)

Entry cost 2.5bp Effective spread: 47bp: 4.28 and 4.75 (19-Jul-11)

Bond: 3.57 Swap: 4.16 Spread 59

+10.5bp Hold: An insurance trade in case the rally continues. The bonds have rallied, but the 3Y swap spread has not massively widened.

Pay fixed in 5Y ZCS vs 4Y -3bp (20-7-11)

-3bp 0bp +5bp -8bp Hold: Trade established in Monthly Inflation Report.

Buy an AUD bear flattener. 3M*3Y vs 3M*10Y

Option Strikes: 5.075 and 5.895. Entry cost 3bp. Entry slope 82bp (23-Jul-11)

Current slope 87bp –but well OTM

-3bp (spent the premium)

Hold: If the curve sells off it is likely to flatten. No sign of a sell-off – options OTM.

Buy the NAB Apr-13 as an ASW against selling the NAB Apr-13 FRN

+11bp (3-Aug-11)

+12 -1bp 0bp 17bp Hold: There is little reason for the ASW fixed rate to be different to the FRN price.

Buy the IBRD Oct-19 vs the WATC Oct-19

39bp 93-Aug-11)

30bp +9bp 25bp 45bp Hold: The IBRD is likely to attract foreign demand while the WATC looks dear.

Buy the September bank bill vs OIS

53bp (10-Aug-11)

46bp +7bp 20bp 70bp Take Profit: Looking for the market to calm and OIS to sell-off relative to bank bills.

Pay 3M OIS 4.41% (16-Aug-11)

4.31% -10bp (incl carry)

4.78% 4.20% New Trade: With risk aversion starting to retreat, we see the market shifting to an RBA on-hold stance in the short term.

Pay 1Y AUD swap and receive 1Y NZD swap

100bp (22-Aug-11)

100bp 160bp 80bp New Trade: The extent of monetary policy divergence priced by the market is too wide, especially on the AUD leg.



3

The Lonely Bond Analyst’s Guide to European Bank Risk and Australian Money Markets

Philip Brown – Fixed Income Quantitative Strategist – 61 3 9675 7522 – [email protected]

The European Sovereign sector has the potential to seriously affect the European banking system.

European bank equity prices have fallen significantly and borrowing costs are widening.

Australia is being directly affected by the increased risks.

We do not wish to hold our September bills/OIS spread contraction trade through to expiry.

Last week we provided a guide on the European Sovereigns. This week, we extend that work to look at how European Sovereign weakness is affecting banks and the broader market. There has been a distinct widening of money market spreads in Europe and Australia, though other markets have been less affected (see Figure 1).

Weakness in a sovereign credit can easily and quickly spread to that country’s banks. From there, the contagion is “free” inside the banking system and can spread globally.

As goes the nation, so goes the bank

The links between a Sovereign and the banks within that jurisdiction are multilayered and very deep.

Direct holdings and Counterparty risk

There is the obvious point that banks have large holdings of sovereign bonds in their liquidity books.

As a second point, large sovereign borrowers will tend to have large swap positions too. These positions will also be biased towards the banks from within the jurisdiction.

The work done by the European Banking Association during the Stress Tests showed that the major holders of Greek sovereign exposures were other Greek institutions – predominantly banks. (See Figure 2.)

Indirect Sovereign support

A weakening of the Sovereign credit can weaken the credit of banks. Many banks have implicit or explicit guarantees of support from the sovereign. As the sovereign weakens the quality of that support falls.

Even if the sovereign has no explicit guarantee outstanding, the weakening of the sovereign credit makes it harder to credibly assume that

Figure 1: 3M bank bill to OIS spreads are widening


Figure 2: Greek exposures by domicile

Source: EBA, CBA

0

10

20

30

40

50

60

70

80

Jan-11 Mar-11 May-11 Jul-11

AUD NZD USD

EUR GBP

bp

AT BE

CY DE

FI FR

GB GR

IE IT

NL PT

SE SIGreece Instituttions hold 67% of Greek Exposures

Weakness in sovereign credit impacts on the banking system...

...through direct losses and counterparty risk

..through a withdrawal of support



4

the sovereign will lend support.

Economic Consequences

As a final point, a weakening of sovereign credit does not occur in a vacuum. Normally, when sovereign credits weaken they do so in a climate in a climate of severe economic weakness. They then enact austerity regimes to reduce spending that further weakens the overall economy in the short term, which also impacts on the health of banks.

Europe is the epicentre, of course

The recent widening of Sovereign spreads in Europe has been focused on Italy and Spain, but France has also pushed a little wider. (Figure 3.)

Although the movement in French spreads is very small, it did cause a stir in markets. Along with the widening in Government spreads there was media speculation about a downgrade in the French Sovereign rating and a sharp sell-off in the shares of French banks. Societe Generale fell particularly fast and is now down nearly 60% from its February peak. (See Figure 4.)

As we showed in Figure 1, the recent scare has lead to a quite sharp widening in European Bills/OIS spreads (technically speaking, EURIBOR to OIS). There was an immediate institutional response, too, with many regions temporarily banning short sales of banking stocks. Those bans were mostly temporary and are due to expire next week. There would appear to be a strong chance the ban will be extended unless current volatility subsides.

The EBA bank stress test review was widely criticised for failing to adequately assess the risk of Sovereign default, so markets are still unsure of how well banks could withstand sovereign defaults.

On a very high level analysis, the answer would appear to be: not well. The EBA review commented that the 90 banks analysed held a total of €11.5b in provisioning against sovereign default. That number appears woefully inadequate if another European sovereign defaults. The same document suggests that the exposure to Greece was just under €100b. Since the Greek agreement involved a write-down of 20% the total sovereign provisioning already appears to have been used for Greek bonds only.

Heaven forbid a large issuer could actually default. Figure 5 shows the volume of bonds outstanding by each issuer. We have already established that it is likely most of that blow will

Figure 3: Spreads to bund


Figure 4: Bank Share performance (Q1, 2010 is 100)


Figure 5: Debt Outstanding – much larger than €11b


0

50

100

150

200

250

300

350

400

450

Jan-10 May-10 Sep-10 Jan-11 May-11

Italy 10Y

Spain 10Y

France 10Y

bp

20

40

60

80

100

120

140

160


SocGen BofACiti BNPBarclays

0

200

400

600

800

1,000

1,200

1,400

1,600

Blegium

France

Germ

any

Greece

Hungary

Ireland

Italy

Portugal

Sp

ain

UK

€b

...and through a weakening of economic growth more generally

The biggest moves so far have been in European banks, particularly French ones

The EBA stress tests did not adequately test for sovereign default



5

fall within the home country. Even with a haircut of only 20% it is easy to see losses an order of magnitude larger than €11.5b.

As an aside, the performance of US banks has not been stellar. For example, Bank of America shares have fallen (figure 4) and their CDS is much wider too. The problem has started in Europe, but is now affecting US banks, and Australian banks, too.

Sydney is very close to Paris, financially speaking

An interesting feature of the recent widening of European bills/OIS has been that Australian bills/OIS has widened much faster than the US, and nearly kept pace with Europe.

We think there are a number of reasons driving this move.

There is a French bank in BBSW

We think the presence of BNP Paribas - a French bank - in Australian BBSW ratesets is a large part of the reason that Australian BBSW spreads have been widening. If there was a serious problem in Europe, it is quite possible BNP Paribas would be affected. Any widening of the BNP spread would likely be reflected in BBSW immediately.

Figure 6 shows the very strong relationship between the average 5Y CDS rate of BBSW-eligible banks and the BBSW/OIS spread. The correlation is very high. Bank credit is a major element of the recent widening of Australian Bills/OIS.

Space for OIS to rally

Part of the reason Australian Bills/OIS spreads are wider than other countries, is that there is more space for Australian OIS rates to rally than elsewhere. (See Figure 7.) In most other jurisdictions the cash rate is so low that there is no credible way to lower rates any further.

The current widening of Bills/OIS is quite different to the widening that accompanied the GFC. In the GFC, there was a simultaneous selling-off in bank paper and rally in OIS to create the very wide spreads seen.

This time around, the OIS rate has collapsed out from under the bank bill rate. But the bank bill rate, in absolute terms, has been very stable (see Figure 8.)

We think there has been a form of market segmentation coming into play. We noted during June that the bond futures were outperforming the physical bonds. At the time,

Figure 6: Australian Bills/OIS and the CDS of banks eligible for BBSW ratesets


Figure 7: Expected Cash rate pricing


Figure 8: Australian bank bills haven’t really moved, OIS has


0

20

40

60

80

40

80

120

160

200

Jan-10 Jun-10 Nov-10 Apr-11 Sep-11

Average BBSW Banks

AUD Bills/OIS

bp

0.000.501.001.502.002.503.003.504.004.505.00

Aug-11 Nov-11 Feb-12 May-12

AUD NZD USD

EUR CAD GBP

3.00

3.50

4.00

4.50

5.00

5.50

6.00


Bills OIS

The French issues have affected Australia too

BNP is in BBSW

Australian OIS had space to rally, allowing the spread to widen



6

we ascribed this to market segmentation. Large offshore players were buying the bond futures, but the domestic cash players who bought the physical bonds were lagging.

We think a similar process is playing out here. Domestic real money players have been reticent to be too heavily invested below the current cash rate. This doesn’t seem to be, necessarily, a fear of bank credit since the funds are being left in shorter bank deposits. Meanwhile, global players are using futures markets and OIS to position for rate cuts and are driving down yields.

The other parties that might be heavily receiving OIS are mortgage balance sheets. In normal circumstances, bank mortgage books have a slight duration mismatch. Mortgage book liabilities are normally floating 1M or floating 3M. However, the interest rate risk on an Australian mortgage is effectively against the overnight rate. To hedge this discrepancy, banks and other mortgage players are natural receivers of OIS, particularly if they fear rate cuts are likely.

Australia is standing on its own feet

The Fed and the BoE still own their QE portfolios. The ECB is still running liquidity auctions. The RBA, however, has withdrawn from the market. So although the Australian spread is widening, it is a real measure of the funding market completely absent any institutional support. Most of the other countries whose spreads are either not widening, or are looking much tighter than Australia’s are still actively intervening in funding markets in some way.

Large open interest in IB futures

The pricing in the IB futures has been extremely unusual, but there have also been large volumes going through. Figure 9 shows the open interest in IB contracts in a relative sense. The chart shows the open interest at the number of days before expiry. The lines marked as years are the averages of the March, June, September and December contracts. The June and September contracts for 2011 are shown individually. The June contract, in particular, had very large open interest and the September one has, until recently, been outstripping even the Jun-11 contract.

Although the pricing of the IB futures does appear extreme (Figure 10), there were a lot of contracts behind that pricing. There is a legitimate market expectation of rate cuts, in our view. The open interest is now falling, which suggests that at least some positions have been cut.

Figure 9: Very large open interest in IB futures


Figure 10: RBA pricing


0

20

40

60

80

100

120

140

160

180

200

0-10-20-30-40-50-60-70-80-90days before contract expiry

2005 20062007 20082009 2010Jun-11 Sep-11

thousand contracts

2.002.252.502.753.003.253.503.754.004.254.504.755.00

Aug-11

Sep

-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Ap

r-12

May-12

Jun-12

Jul-12

Aug-12

%23-Aug-11 1-Aug-11

Australian banks are also funding without the support of the RBA

IB futures have very large open interest at the moment



7

We disagree with this pricing and have recommended paying 3m OIS to capture the “roll-up” effect if the RBA leaves rates on hold in September and October.

Forward Bills/OIS spreads tightening slowly in Australia

On 10 August we suggested receiving the bills/OIS spread on the September bill futures dates. The trade has worked, a little, and the spread has fallen to 47bp. The forward spreads are below the current physical bank bill rateset, which was 50bp this morning. However, with the September Bill Futures expiry approaching quickly (9 Sep) we are a little nervous about holding this spread. The links from European Sovereigns, to European Banks, to Australian BBSW are quite short.

Moreover, any risk to the system would normally be most prevalent during a bank bill expiry. Although it would be considered slightly dirty pool, it would be possible for a bank to fund itself by going into the bill futures expiry with a short position and delivering physical bills into the futures contracts. If the troubles in European banks remain and the spreads are still high going into expiry, the market could become very sensitive to this possibility.

We recommend exiting our September Bills/OIS position at the current level of +47bp, for a 6bp profit.

Conclusions

The current risks to European Sovereigns are quite real and, if they continue to play out as they appear to, the European banking system will likely continue to experience exceptionally large volatility. As long as there are no further major defaults in Europe, there is no reason to presume any bank to be in difficulty. Even if – and I can’t stress this strongly enough – even if a bank were to be in trouble, there would be a massive institutional response to protect the market. Most likely, this would be led by the ECB, but would likely be a co-ordinated global movement. (I wonder what they’ll be talking about in Wyoming next weekend?)

Any uncertainty in Europe can be transmitted to Australia very quickly, because even though our banks are very safe, there are foreign banks in our rateset (at least for the moment).

We don’t want to hold our September Bills/OIS spread tightening trade through this volatility and into the expiry period.

Figure 10: Forward Bills/OIS pricing


0

10

20

30

40

50

60

Today's Phys. Bill

Sep-11 Dec-11 Mar-12

3M Bills OIS Spread

Bills/OIS unlikely to tighten into close-out

There are real risks to European sovereigns, which justify the movements in Australian rates



8

Positioning for a wider 1Y AUD-NZD swap spread

Alex Stanley – Associate Analyst Fixed Income– 61 2 9118 1125 – [email protected]

RBA and RBNZ policy divergence is possible, but not by the extent that the market is currently pricing, especially in the Aussie market.

We pay the front end, where the carry is the highest.

We pay the AUD-NZD 1Y spread at 100bp, targeting 160bp, with a stop at 80bp.

A slowdown in European and US growth and a rise in sovereign and banking risks have driven Australian and New Zealand rates sharply lower in recent weeks.

Swap curves in both Australia and New Zealand are pricing different policy outcomes. The AUD market is pricing rapid rate cuts from the RBA, taking cash to around 3.25%. The NZD market is pricing RBNZ rate hikes, albeit only 50bp, instead of the 100bp priced a month ago.

We don’t see the monetary policy scenarios priced in the respective AUD and NZD curves playing out over the coming months. Either one is possible, but we struggle to see both occurring simultaneously. Therefore, we pay the 1Y AUD-NZD spread at 100bp, targeting 160bp, with a stop at 80bp (paid AUD, received NZD).

RBA and RBNZ policy divergence is possible, but not by the extent of market pricing

In our last AUD-NZD swap spread article (see Weekly Strategy 26 July), we considered the possibility of simultaneous rate cuts by the RBA and hikes by the RBNZ. We concluded that while the direction of RBA and RBNZ policy is normally the same, it’s possible, but unlikely that the respective central banks could move in a different direction.

In particular, we view the extent of divergence in market pricing for the respective central banks as unsustainable. Simply, for the RBA to be cutting rates by 150bp within the next year, it would be in reaction to a severe recession or a severe global financial market event. In such a scenario, we don’t think the RBNZ would be raising rates by 50bp - off an emergency setting.

Global risks have intensified since we last considered the AUD-NZD spread in late July. The sudden and severe loss of market confidence drove a strong rally and steepening of the Aussie curve. Consequently, we were stopped out of our AUD-NZD 2/10Y swap box (AUD flattener versus NZD steepener).

Figure 1 – RBA and RBNZ cash rate pricing*


*30 day Cash Futures in AUD, OIS in NZD

Figure 2 – AUD-NZD 1Y Swap Spread


2.0

2.5

3.0

3.5

4.0

4.5

5.0

Aug-11 Nov-11 Feb-12 May-12 Aug-12

%

NZ

AUS

50

100

150

200

250

Jan-10 Jul-10 Jan-11 Jul-11

bp

Swap curves in Australia and New Zealand are pricing different monetary policy directions.

RBA and RBNZ policy divergence is possible

But unlikely to the extent of current market pricing.



9

We’re conscious of the potential for a further rally at the front end of the Aussie curve. However, we regard the cumulative 150bp of rate cuts priced for the next year as too extreme a scenario. The RBA would have to move by more than 25bp per quarter in the next 12 months. Possible, but not likely, in our view. The RBA is more likely to hold rates steady while market volatility is high. The underlying risks from falling stock prices and possible credit market dislocation do increase the likelihood of cuts. But we think the RBA’s threshold for cutting rates is very high, given they expect inflation to remain near the upper end of the 2-3% band in the next year.

Figure 3 shows that the consensus of Economists has shifted from expecting multiple rate hikes by the end of 2011 to on-hold, with a few calling for cuts. But, crucially, rate cut forecasts are still in the minority and surveys still show that most economists, including at CBA, expect the next RBA move to be up.

It’s possible that our monetary policy outlook could change with the evolving risks offshore. However, our initial target of 160bp on the trade assumes the RBA stays on hold (but the market prices less risk of cuts) and the RBNZ hikes 50bp. Under a more pessimistic scenario, where the RBA cuts 50bp in the next year and the RBNZ keeps rates at 2.5%, we can still see the spread rising as high as 140bp.

Most of the risk (and return) in this trade is likely to come from the paid AUD leg, given the higher level of rates in Australia, the relative resilience of the Aussie dollar and the mildly restrictive monetary policy setting. Looking ahead, remarks by two RBA speakers this week are the most immediate risk events for AUD rates (before Bernanke’s speech on the weekend) and this trade.

Ric Battellino speaks later today and, more importantly, Glenn Stevens’ testifies to a parliamentary committee on Friday. The August board meeting statement showed the RBA considered hiking rates. Since then, data showing slower growth in Europe and the US, flat employment growth in Australia and a big jump in market volatility should make the RBA less hawkish. However, a less hawkish tone doesn’t equate to the RBA signalling imminent rate cuts, in our view. Therefore, we think it’s more likely that Battellino and Stevens’ remarks could lead the Aussie front end to sell-off, given the 150bp of cuts already priced.

Positioning at the front end provides the greatest carry benefit

In the Australian curve, the highest carry available is for a 1Y swap (Figure 5). Most of the

Figure 3 – Distribution of Economists’ consensus for end of 2011 RBA rate expectations


Figure 4 – AUD and NZD spot curves


Figure 5 – 1M AUD swap curve carry for a paid position

Length AUD Roll-

Down

AUD Ratset-Carry Total Carry

1Y -3.4 -6.3 9.7 2Y 1.4 -3.1 1.7 3Y 1.1 -1.7 0.6 4Y 2.3 -0.2 -2.0 5Y 1.4 0.1 -1.5 6Y 1.2 0.3 -1.5 7Y 1.2 0.5 -1.7 8Y 0.6 0.5 -1.2 9Y 0.6 0.6 -1.2

10Y 0.6 0.6 -1.3

Source: Reuters, CBA

0

10

20

30

40

50

60

70

80

4% 4¼% 4½% 4¾% 5% 5¼% 5½% 5¾% 6%

%

6-Jun

15-Jul

2-Aug

11-Aug

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

3m 1Y 2Y 3Y 4Y 5Y 7Y 10Y

%

New Zealand

Australia

Elevated financial market volatility is more likely to keep the RBA on hold than to cut.

The number of Economists forecasting rate cuts has increased, but the consensus still says the next move is up.

We expect the biggest benefit in the trade to come from the paid 1Y AUD position.



10

10bp of carry comes from the rate-set – the 1Y swap rate of 4.04% is far below the 3m BBSW rate of 4.74%.

In New Zealand, the received 1Y swap position has positive carry. As Figure 6 shows, the carry on a 1Y received NZD swap is lower than further out the curve. However, the exceptionally high 1Y carry in Australia makes the 1Y AUD-NZD spread, the ideal position from a carry perspective, at 13bp for one month.

Figure 6 – 1M NZD swap curve carry for a received position

Length NZD Roll-

Down NZD Ratset-

Carry Total Carry

1Y 1.7 1.3 3.0 2Y 2.4 1.8 4.2 3Y 2.3 2.0 4.4 4Y 2.5 2.2 4.7 5Y 2.2 2.3 4.5 6Y 1.8 2.3 4.1 7Y 1.8 2.3 4.1 8Y 1.0 2.2 3.3 9Y 1.0 2.2 3.2

10Y 1.0 2.1 3.2

Source: Reuters, CBA

Paying the front end AUD-NZD spread provides the greatest carry benefit.



11

Key Views

United States

Tactical (<1 mth)

Strategic (>3 mths)

The US economy appears to be slowing. The Q2 GDP figures and revisions to prior quarters confirmed US growth is running at a slower pace than the market and Fed had anticipated earlier in the year. The recovery in the labour market remains slow. Inflation has increased, but is still being mainly driven by food and energy prices.

Market volatility continues. There remain severe risks to the US outlook ranging from fiscal contraction to more European instability. US rates are likely to stay low for a long time.

QE2 officially ended in June, but the Fed continues to invest coupons and US policy remains highly stimulatory. The FOMC committed to keeping the Fed Funds rate at “exceptionally low levels” through to mid 2013. Further asset purchases can’t be ruled out, but aren’t likely to be supported by all FOMC members. Any further purchases would have a limited ability to lower rates any further. Front-end rates are already very close to zero, the focus of any further QE, should it happen, will be on the longer end rates.

The slower pace of growth and the Fed’s extended commitment to accommodative policy means that rates will be lower for longer across the curve. We expect a slow rise in US bond yields which will initially steepen the curve.

Policy rate 0.1% 0.1%

10yr bond 2.50% 2.70%

2/10 curve 220bp 230bp

USD/JPY 77.00 78.00

EUR/USD 1.43 1.45

The USD is caught between the demand for USD term funding by European banks and a soft US economy. We believe that once volatility settles down and European bank term funding requirements are met, the Fed’s long-term policy guidance and the persistent weakness in the US economy will keep US yields, and therefore the USD, lower for longer. The risk to our view is the global economic outlook deteriorates significantly further and the USD (and JPY and CHF) strengthen reflecting safe-haven demand. Ironically, a US recession would likely generate an upward spike in the USD.

Australia

Tactical (<1 mth)

Strategic (>3 mths)

The medium term outlook for the Australian economy is positive. Recent data has been mixed and confirms the multi-speed nature of growth across different sectors of the economy. Inflation has picked up, and in underlying terms is running at the top end of the RBA’s 2-3% band. The RBA considered hiking rates at their most recent meeting, but uncertainty over global growth prospects and market volatility have kept rates on hold for now.

The recent concerns about the European banking system are being felt in Australia and are likely to continue to do so. Australian BBSW/OIS spreads will likely remain high while offshore concerns continue.

We see the fundamental strength exerted by high commodity prices and booming investment as ultimately dominating and pushing the RBA to eventually tighten policy over the course of 2011-13. Our bias is toward a flatter curve over time. 10Y Australian spreads to US should hold their ground in 2011 despite wider front end spreads, before tightening quickly when US bonds yields start to rise.

An emerging downside risk for the AUD is a slowdown in the global economy (particularly in the US) and consequent fall in commodity prices. However, once market volatility settles down, the Fed’s policy guidance will keep US yields lower for longer and thereby support a higher AUD/USD. Also supporting the AUD is ongoing strong growth in China and therefore demand for commodity prices.


10yr bond 4.70% 5.00%

3/10 curve 60bp 20bp

10yr EFP 65bp 55bp

10yr v US 220bp 230

AUD/USD 1.0600 1.0900

New Zealand

Tactical (<1 mth)

Strategic (>3 mths)

The NZ economy is starting to recover after the Christchurch earthquake and recent domestic developments have been encouraging. The Q1 GDP figures were surprisingly strong and the Q2 CPI figures higher than expected. The RBNZ’s removal of the post-earthquake insurance cut was contingent on “current global financial risks reced[ing] and the economy continu[ing] to recover”. Financial market risks have grown substantially over August, and subsequently we have pushed out our forecast of a 50bp hike to December.

In the absence of a major downward revision to global growth expectations, we expect the NZD to move towards an 0.85-0.88 range against the USD, assisted by insurance repatriation flows, still high agricultural prices, and re-firming expectations of a 50bpt RBNZ rate hike later this year. The significant rebuild of Christchurch and the upcoming Rugby World Cup should compound current economic momentum. New Zealand’s economic recovery, positive export sector outlook, and the RBNZ’s tightening cycle will all help keep the NZD strong vis-à-vis the USD over the next year. If the global economy deteriorates, the NZD will head below 0.80.


10yr bond 4.90% 5.00%

2/10 swap curve

180bp 160bp

10yr v US 240 230

10yr v AUS 20bp 0bp

NZD/USD 0.8500 0.8600

AUD/NZD 1.2500 1.2700 \\\



12

Cash Rate Pricing

Source: All data sourced from Bloomberg. Rates displayed are calculated using IB Futures (Australia), FF Futures (US) and OIS in all other currencies.

Australian Cash Rate Pricing New Zealand OCR Pricing US Fed Funds PricingCum. % chance Cum. % chance Cum. % chance

Rate of +25bp Rate of +25bp Rate of +25bpCurrent 4.75 0 Current 2.50 0 Current 0.12 06-Sep-11 4.53 -87 15-Sep-11 2.54 15 20-Sep-11 0.08 -144-Oct-11 4.12 -253 27-Oct-11 2.59 35 2-Nov-11 0.08 -141-Nov-11 3.81 -376 8-Dec-11 2.66 64 13-Dec-11 0.07 -216-Dec-11 3.56 -478 26-Jan-12 2.72 88 25-Jan-12 0.09 -127-Feb-12 3.34 -565 8-Mar-12 2.66 63 13-Mar-12 0.08 -156-Mar-12 3.27 -594 26-Apr-12 3.01 203 25-Apr-12 0.08 -143-Apr-12 3.16 -634 14-Jun-12 2.76 104 20-Jun-12 0.07 -191-May-12 3.19 -626 31-Jul-12 0.08 -165-Jun-12 3.20 -619 12-Sep-12 0.08 -16

Candian Rate Pricing EUR EONIA Pricing UK SONIA PricingCum. % chance Cum. % chance Cum. % chance

Rate of +25bp Rate of +25bp Rate of +25bpCurrent 0.55 0 Current Target 1.50 Current 0.52 07-Sep-11 1.13 52 8-Sep-11 0.89 -245 8-Sep-11 0.52 025-Oct-11 0.95 -22 6-Oct-11 0.88 -250 6-Oct-11 0.48 -176-Dec-11 0.84 -64 3-Nov-11 0.82 -273 10-Nov-11 0.49 -1418-Jan-12 0.72 -113 8-Dec-11 0.79 -283 8-Dec-11 0.47 -2129-Feb-12 0.68 -129 12-Jan-12 0.75 -302 5-Jan-12 0.47 -2011-Apr-12 0.63 -148 9-Feb-12 0.73 -309 8-Mar-12 0.43 -38

8-Mar-12 0.70 -319 5-Apr-12 0.46 -277-Feb-13 0.67 -333 10-May-12 0.43 -397-Mar-13 0.67 -333 7-Jun-12 0.42 -41

0.00

1.00

2.00

3.00

4.00

5.00

Aug Oct Dec Feb Apr Jun Aug

AUD Implied Cash Rate

2.00

2.20

2.40

2.60

2.80

3.00

3.20


NZD Implied Cash Rate

0.00

0.05

0.10

0.15

0.20


USD Implied Cash Rate

0.00

0.20

0.40

0.60

0.80

1.00

1.20


CAD Implied Cash Rate

0.00

0.10

0.20

0.30

0.40

0.50

0.60


GBP Implied Cash Rate

0.00

0.20

0.40

0.60

0.80

1.00


EUR Implied Cash Rate



13

CBA Forecasts:

Cash rate 23-Aug Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12US 0.25 0.25 0.25 0.25 0.25 0.25 0.25Australia 4.75 4.75 5.00 5.25 5.25 5.50 5.50New Zealand 2.50 2.50 3.00 3.50 4.00 4.50 4.50United Kingdom 0.50 0.50 0.50 0.50 0.75 1.00 1.25Eurozone 1.50 1.50 1.75 2.00 2.25 2.50 2.75China 6.31 6.56 6.56 6.56 6.81 6.81 7.06Japan 0.10 0.10 0.10 0.10 0.10 0.10 0.102-yr bond yield 23-Aug Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12US 0.20 0.30 0.40 0.50 0.60 0.70 0.90Australia 3.60 4.00 4.70 4.90 5.10 5.20 5.30New Zealand 2.94 3.40 3.70 4.00 4.20 4.40 4.60United Kingdom 0.57 0.80 1.00 1.20 1.40 1.60 1.80Eurozone 0.63 1.00 1.50 2.00 2.30 2.50 2.60Japan 0.14 0.20 0.25 0.30 0.35 0.40 0.4010-yr bond yield 23-Aug Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12US 2.11 2.50 2.70 2.90 3.10 3.30 3.50Australia 4.30 4.70 5.00 5.10 5.15 5.15 5.20New Zealand 4.42 4.90 5.00 5.10 5.20 5.30 5.30United Kingdom 2.39 2.90 3.00 3.10 3.20 3.30 3.30Eurozone 2.10 2.50 2.80 3.00 3.10 3.20 3.30Japan 1.01 1.10 1.20 1.30 1.40 1.50 1.50

Currencies 23-Aug Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12AUD/USD 1.04 1.08 1.09 1.09 1.10 1.10 1.08AUD/JPY 80.13 84.24 85.02 85.02 84.70 84.70 85.32AUD/EUR 0.73 0.73 0.74 0.73 0.73 0.73 0.73AUD/GBP 0.63 0.65 0.65 0.64 0.65 0.65 0.64

AUD/CAD 1.03 1.05 1.05 1.04 1.05 1.05 1.05AUD/NZD 1.26 1.27 1.27 1.25 1.25 1.25 1.26USD/JPY 76.78 78.00 78.00 78.00 77.00 77.00 79.00EUR/USD 1.44 1.47 1.48 1.49 1.50 1.50 1.47

GBP/USD 1.65 1.67 1.68 1.69 1.70 1.70 1.69USD/CAD 0.99 0.97 0.96 0.95 0.95 0.95 0.97NZD/USD 0.83 0.85 0.86 0.87 0.88 0.88 0.86



14

Calendar – August 2011

Note: Figures in brackets represent previous result (if available). All information is preliminary and subject to revision. Chief Economist: Michael Blythe ph: 9118-1101 Economist: James McIntyre: 9118-1100

Monday Tuesday Wednesday Thursday Friday1 2 3 4 5

AU NSW & ACT Bank holiday AU ABS House price indexes, QII, AU CBA/Ai-Group Perf of Serv Index, Jul, (48.5) NZ Emp Growth/Unemp Rate, QII, AU Ai-Group PCI, Jul, Index, (35.8)AU AI-Group PMI, Jul, Index, (52.9) AU Trade balance Jun, $bn, 2.6, (2.3) AU Retail trade, Jun, m%ch, 0.5, (-0.6) EU ECB announces int. rate, %, 1.50, (1.50) AU RBA Statement on Monetary Policy AU HIA new home sales Jun, m%ch, (-0.2) AU Build approv, Jun, m%ch, 4, (-7.9) AU Retail sales ex inflation, QII, q%ch, 0.4 (0.0) GE Factory orders, Jun, m/y%ch, (1.8/12.2) JP Leading / Coincident index CI, Jun, (99.6/106.3)CH PMI Manufacturing, Jul, Index, (50.9) AU RBA cash rate, %, 4.75, (4.75) CH Non-Manuf PMI Jul, Index, (57) UK BoE announces rates, %, 0.50, (0.50) JP BoJ target rate, %, 0-0.10, (0-0.10)JP Vehicle sales, Jul, y%ch, (-0.233) NZ Avg Hourly Earnings, QII, EU PMI services/composite, Jul, Index, (51.4/50.8) UK New car registrations, Jul, y%ch, (-6.2) UK PPI Input/Output/core, Jul, y%ch, (17.0/5.7/3.2)EU/GE/UK PMI manufacturing, Jul, Index, (50.4/52.1/51.3) EU PPI, Jun, m/y%ch, (-0.2/6.2) EU Retail sales, Jun, m/y%ch, (-1.1/-1.9) US Non-farm payrolls, Jul, '000, (18)US Construction spending, Jun, m%ch, (-0.6) UK PMI construction, Jul, Index, (53.6) GE/UK PMI services, Jul, Index, (52.9/53.9) US Unemployment rate, Jul, %, (9.2)US ISM manufacturing, Jul, Index, (55.3) US Personal income/spending, Jun, m%ch, (0.3/0.0) US ISM non-manufacturing, Jul, Index, (53.3) US Avg hrly earnings, Jul, m/y%ch, (0.0/1.9)

US PCE deflator/core, Jun, y%ch, (2.5/1.2) US Factory orders, Jun, m%ch, (0.8) US Consumer credit, Jun, $bn, (5.1)US Total vehicle sales, Jul, mn, (11.41) CA Net change in employment, Jul, '000, (28.4)

8 9 10 11 12AU TD inflat gauge Jul, m/y%ch, (0.0/2.9) AU Housing finance, Jun AU MI/WBC Consumer Sent, Aug, Index, (92.8) AU MI Consumer Inflation Exp., Aug, %, (3.4) NZ Retail sales ex inflation, QII, q%ch, (0.9)AU ANZ Job ads, Jul, m%ch, (3.7) No. of own-occupiers, %, 2.0, (4.4) AU Lending finance, Jul, AU MI Unemp. Exp., Aug, Index, (132.4) JP Industrial production, Jun, y/y%chJP Curr a/c total/adjusted, Jun, ¥bn, (590.7/391.0) Value of all loans, %, 2.0, (2.2) CH Trade balance Jul, US$bn, (22.3) AU Labour force, July JP Capacity utilisation, Jun, m%ch, (12.8)JP Trade balance - BOP basis, Jun, ¥bn, (-772.7) AU NAB Bus conf/cond, Jul, Index, (0/2) JP Housing loans, QII, y%ch, (2.7) employment, '000, 15, (23.4) EU Industrial production Jun, m/y%ch, (0.1/4.0)

NZ Credit card spending, Jul, m%ch, (0.8) JP Domestic CGPI, Jul, m/y%ch, (-0.1/2.5) unemployment rate, %, 4.9, (4.9) US Retail sales, Jul, m%ch, (0.1)CH PPI/CPI, Jul, y%ch, (7.1/6.4) GE CPI, Jul, participation rate, %, 65.6, (65.6) US Uni. Of Michigan confidence, Aug, IndexCH Industrial production, Jul, y%ch, (15.1) UK Bank of England Inflation Report NZ Business PMI, Jul, Index, (54.3) US Business inventories, Jun, m%ch, (1.0)CH Retail sales, Jul, y%ch, (17.7) US Wholesale inventories, Jun, m%ch, (1.8) JP Machine orders, Jun, m/y%ch, (3.0/10.5)JP Machine tool orders, Jul, y%ch, (53.5) EU ECB Monthly report UK Industrial production, Jun, m/y%ch, (0.9/-0.8) US Trade balance, Jun, $bn, (-50.2)US FOMC rate decision, %, 0-¼, (0-¼) CA Housing price index, Jun, m/y%ch, (0.4/1.9)CA Housing starts, Jul, '000, (197.4) CA Trade balance Jun, C$, (-0.8)

15 16 17 18 19AU Motor veh. sales, Jul, m/y%ch, (1.3/-11.5) AU RBA Board Minutes, AU DEWR skilled vacancies, Jul, AU AWE May, q/y%ch, 0.9/3.9 (1.0/3.8) NZ Visitor arrivals, Jul,NZ PSI, Jul, Index, (54.7) EU GDP, QII, q/y%ch, (0.8/2.5) AU WPI QII, q/y%ch, 1.0/4.0 (0.8/3.8) JP Trade bal total/adj, Jul, ¥bn, (70.7/-191.2) NZ Credit card spending, Jul, m/y%ch, (0.4/4.5)JP GDP, QII, q%ch, (-0.9) EU Trade balance Jun, €bn, (-0.6) NZ Producer prices, in/outputs, QII, EU Construction output, Jun, m/y%ch, (-1.1/-1.9) GE Producer prices, Jul, m/y%ch, (0.1/5.6)US Empire manufacturing, Aug, Index, (-3.76) GE GDP, QII, q/y%ch, (1.5/3.1) EU Current account, Jun, €bn, (-5.2) UK Retail sales, Jul, m/y%ch, (0.7/0.4) CA CPI, Jul, m/y%ch, (-0.7/3.1)US NAHB housing market index, Aug, (15) UK CPI, Jul, m/y%ch, (-0.1/4.2); core, y%ch, (2.8) EU CPI, Jul, m/y%ch, (0.0/2.7); core, y%ch, (1.6) US CPI, Jul, m/y%ch, (-0.2/3.6); core, m/y%ch, (0.3/1.6)

US Import price index, Jul, m/y%ch, (-0.5/13.6) UK Bank of England minutes US Leading indicators, Jul, m%ch, (0.3)US Housing starts, Jul, '000, (629) UK ILO unemployment rate (3mths), Jun, %, (7.7) US Philadelphia Fed, Aug, Index, (3.2)US Building permits, Jul, '000, (624) US Producer price index Jul, m/y%ch, (-0.4/7.0) US Existing home sales, Jul, mn/m%ch, (4.77/-0.8)US Industrial production, Jul, m%ch, (0.2) CA Leading indicators, Jul, m%ch, (0.2)US Capacity utilisation, Jul, %, (76.7) CA Wholesale sales, Jun, m%ch, (1.9)

22 23 24 25 26AU Government Financial Estimates, 2011-12 AU Prelim. construction work done, QII, q%ch, AU HIA Housing Affordability Index, QII, (55.7) JP CPI, Jul, JP Machine tool orders, Jul, NZ Trade balance, Jul, NZ Food prices, Jul, m%ch, (1.4) GE Retail sales, Jul,EU/GE ZEW survey (econ. sentiment), Aug, (-7/-15.1) EU Industrial new orders, Jun, m/y%ch, (3.6/15.5) UK Total bus investment, QII, q/y%ch, (-3.2/2.7)US New home sales, Jul, GE IFO - Business climate, Aug, Index, (112.9) US GDP, QII, q%chsaar, (1.9)CA Retail sales, Jun, m%ch, (0.1) US Durable goodes orders, Jul, US Uni. Of Michigan confidence, Aug, Index

29 30 31 Early September Central Bank MeetingsAU HIA new home sales Jul, AU Build approvals, Jul AU RP Data house prices, Jul, AU Capex, QII (1 Sep) AU RBA (2 Aug)GE CPI, Aug, NZ Building permits, Jul, AU Private sector credit, Jul, AU Retail trade, July (1 Sep) UK BoE (4 Aug)US Personal income/spending, Jul, JP Retail sales, Jul, NZ NBNZ Business confidence, Aug, Index AU RBA cash rate decision (2 Sep) EU ECB (5 Aug)US PCE deflator/core, Jul, UK Net consumer credit, Jul, JP Industrial production/vehicle production, Jul, AU Business Indicators, QII, (5 Sep) JP BoJ (5 Aug)US Pending home sales, Jul, US S&P/Case-Shiller home price ind., Jun, JP Construction orders/housing starts, Jul, AU Balance of Payments, QII (6 Sep) US FOMC (10 Aug)US Dallas Fed, Aug, Index US FOMC Minutes UK GfK consumer confidence survey, Aug, Index AU Government Finance Statistics, QII (6 Sep) CA BoC (7 Sep)

CA Current account, QII, C$bn, (-8.9) US Factory orders, Jul, AU Housing finance, Jul (6 Sep) NZ RBNZ (15 Sep)CA GDP, QII, q%chsaar, (3.9) AU GDP, QII (7 Sep)CA Teranet House Prices, Jun, AU Labour force, Aug (8 Sep)



15

Please view our website at www.research.commbank.com.au. The Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 ("the Bank") and its subsidiaries, including Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 ("CommSec"), Commonwealth Australia Securities LLC, CBA Europe Ltd and Global Markets Research, are domestic or foreign entities or business areas of the Commonwealth Bank Group of Companies (CBGOC). CBGOC and their directors, employees and representatives are referred to in this Appendix as “the Group”. This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy any securities or financial instruments. This report has been prepared without taking account of the objectives, financial situation and capacity to bear loss, knowledge, experience or needs of any specific person who may receive this report. No member of the Group does, or is required to, assess the appropriateness or suitability of the report for recipients who therefore do not benefit from any regulatory protections in this regard. All recipients should, before acting on the information in this report, consider the appropriateness and suitability of the information, having regard to their own objectives, financial situation and needs, and, if necessary seek the appropriate professional, foreign exchange or financial advice regarding the content of this report. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed elsewhere by the Group. We are under no obligation to, and do not, update or keep current the information contained in this report. The Group does not accept any liability for any loss or damage arising out of the use of all or any part of this report. Any valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties. Different assumptions and estimates could result in materially different results. The Group does not represent or warrant that any of these valuations, projections or forecasts, or any of the underlying assumptions or estimates, will be met. Past performance is not a reliable indicator of future performance. The Group has provided, provides, or seeks to provide, investment banking, capital markets and/or other services, including financial services, to the companies described in the report and their associates. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject any entity within the Group to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to the Group. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior written permission of the appropriate entity within the Group. In the case of certain products, the Bank or one of its related bodies corporate is or may be the only market maker. The Group, its agents, associates and clients have or have had long or short positions in the securities or other financial instruments referred to herein, and may at any time make purchases and/or sales in such interests or securities as principal or agent, including selling to or buying from clients on a principal basis and may engage in transactions in a manner inconsistent with this report.

US Investors: If you would like to speak to someone regarding the subject securities described in this report, please contact Commonwealth Australia Securities LLC (the “US Broker-Dealer”), a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) and a member of the Financial Industry Regulatory Authority (“FINRA”) at 1 (212) 336-7737. This report was prepared, approved and published by Global Markets Research, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 ("the Bank") and distributed in the U.S. by the US Broker-Dealer. The Bank is not registered as a broker-dealer under the Exchange Act and is not a member of FINRA or any U.S. self-regulatory organization. Commonwealth Australia Securities LLC (“US Broker-Dealer”) is a wholly owned, but non-guaranteed, subsidiary of the Bank, organized under the laws of the State of Delaware, USA, with limited liability. The US Broker-Dealer is not authorized to engage in the underwriting of securities and does not make markets or otherwise engage in any trading in the securities of the subject companies described in our research reports. The US Broker-Dealer is the distributor of this research report in the United States under Rule 15a-6 of the Exchange Act and accepts responsibility for its content. Global Markets Research and the US Broker-Dealer are affiliates under common control. Computation of 1% beneficial ownership is based upon the methodology used to compute ownership under Section 13(d) of the Exchange Act. The securities discussed in this research report may not be eligible for sale in all States or countries, and such securities may not be suitable for all types of investors. Offers and sales of securities discussed in this research report, and the distribution of this report, may be made only in States and countries where such securities are exempt from registration or qualification or have been so registered or qualified for offer and sale, and in accordance with applicable broker-dealer and agent/salesman registration or licensing requirements. The preparer of this research report is employed by Global Markets Research and is not registered or qualified as a research analyst, representative, or associated person under the rules of FINRA, the New York Stock Exchange, Inc., any other U.S. self-regulatory organization, or the laws, rules or regulations of any State.

European Investors: This report is published, approved and distributed in the UK by the Bank and by CBA Europe Ltd (“CBAE”). The Bank and CBAE are both registered in England (No. BR250 and 05687023 respectively) and authorised and regulated in the UK by the Financial Services Authority (“FSA”). This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for retail customers and are not available to them. The products and services referred to in this report may put your capital at risk. Investments, persons, matters and services referred to in this report may not be regulated by the FSA. CBAE can clarify where FSA regulations apply.

Singapore Investors: This report is distributed in Singapore by Commonwealth Bank of Australia, Singapore Branch (company number F03137W) and is made available only for persons who are Accredited Investors as defined in the Singapore Securities and Futures Act and the Financial Advisers Act. It has not been prepared for, and must not be distributed to or replicated in any form, to anyone who is not an Accredited Investor.

Hong Kong Investors: This report was prepared, approved and published by the Bank, and distributed in Hong Kong by the Bank's Hong Kong Branch. The Hong Kong Branch is a registered institution with the Hong Kong Monetary Authority to carry out the Type 1 (Dealing in securities) and Type 4 (Advising on securities) regulated activities under the Securities and Futures Ordinance. Investors should understand the risks in investments and that prices do go up as well as down, and in some cases may even become worthless. Research report on collective investment schemes which have not been authorized by the Securities and Futures Commission is not directed to, or intended for distribution in Hong Kong.

All investors: Analyst Certification and Disclaimer: Each research analyst, primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the report. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing, and interpreting market information. Directors or employees of the Group may serve or may have served as officers or directors of the subject company of this report. The compensation of analysts who prepared this report is determined exclusively by research management and senior management (not including investment banking). No inducement has been or will be received by the Group from the subject of this report or its associates to undertake the research or make the recommendations. The research staff responsible for this report receive a salary and a bonus that is dependent on a number of factors including their performance and the overall financial performance of the Group, including its profits derived from investment banking, sales and trading revenue.

Unless agreed separately, we do not charge any fees for any information provided in this presentation. You may be charged fees in relation to the financial products or other services the Bank provides, these are set out in the relevant Financial Services Guide (FSG) and relevant Product Disclosure Statements (PDS). Our employees receive a salary and do not receive any commissions or fees. However, they may be eligible for a bonus payment from us based on a number of factors relating to their overall performance during the year. These factors include the level of revenue they generate, meeting client service standards and reaching individual sales portfolio targets. Our employees may also receive benefits such as tickets to sporting and cultural events, corporate promotional merchandise and other similar benefits. If you have a complaint, the Bank’s dispute resolution process can be accessed on 132221.

Unless otherwise noted, all data is sourced from Australian Bureau of Statistics material (www.abs.gov.au).



16

Research

Commodities Telephone Email Address

Luke Mathews

Lachlan Shaw

Paul Hodsman, CFA

Elise Aaternir

Agri Commodities

Mining & Energy Commodities



+612 9118 1098

+613 9675 8618

+613 9675 8532

+613 9675 6202

[email protected]

[email protected]

[email protected]

[email protected]

Economics Telephone Email Address

Michael Blythe

Michael Workman

John Peters

James McIntyre

Chief Economist

Senior Economist

Senior Economist

Economist

+612 9118 1101

+612 9118 1019

+612 9117 0112

+612 9118 1100

[email protected]

[email protected]

[email protected]

[email protected]

Fixed Income Telephone Email Address

Adam Donaldson

Philip Brown

Alex Stanley

Michael Bors

Steve Shoobert

Winnie Chee

Tally Dewan

Kevin Ward

Head of Debt Research

Fixed Income Quantitative Strategist

Associate Analyst, Fixed Income

Credit Research Analyst

Credit Research Analyst

Securitised Product

Quantitative Analyst

Database Manager

+612 9118 1095

+612 9118 1090

+612 9118 1125

+612 9118 1108

+612 9118 1096

+612 9118 1104

+612 9118 1105

+612 9118 1960

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

Foreign Exchange and International Economics Telephone Email Address

Richard Grace

Joseph Capurso

Peter Dragicevich

Andy Ji

Chris Tennent-Brown

Martin McMahon

Chief Currency Strategist & Head of International Economics

Currency Strategist

FX Economist

Asian Currency Strategist

FX Economist

Economist Europe

+612 9117 0080

+612 9118 1106

+612 9118 1107

+65 6349 7056

+612 9117 1378

+44 20 7710 3918

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

Delivery Channels & Publications Telephone Email Address

Monica Eley

Ai-Quynh Mac

Internet/Intranet

Information Services

+612 9118 1097

+612 9118 1102

[email protected]

[email protected]

New Zealand Telephone Email Address

Nick Tuffley

Jane Turner

Christina Leung

ASB Chief Economist

Economist

Economist

+64 9374 8604

+64 9374 8185

+64 9369 4421

[email protected]

[email protected]

[email protected]

Sales

Institutional Telephone Equities Telephone

Syd FX

Credit

Japan Desk

Melb

Lon FX

Debt & Derivatives

Corporate

HK

Sing

NY

+612 9117 0190

+612 9117 0341

+612 9117 0020

+612 9117 0025

+613 9675 6815

+613 9675 7495

+613 9675 6618

+613 9675 7757

+44 20 7329 6266

+44 20 7329 6444

+44 20 7710 3905

+852 2844 7538

+65 6349 7077

+1212 336 7739

Syd

Asia

Lon/Eu

NY

+612 9118 1446

+613 9675 6967

+44 20 7710 3573

+1212 336 7749

Corporate Telephone

NSW

VIC

SA

WA

QLD

NZ

Metals Desk

Agri Desk (Corp)

Agri Desk

+612 9117 0377

+612 9675 7737

+618 8206 4155

+618 9482 6044

+617 3015 4525

+64 9375 5738

+612 9117 0069

+612 9117 0157

+612 9117 0145

Fixed Income: Weekly Strategy - CommBank · PDF fileAustralian curve is starting to realise...

Documents

Transcript of Fixed Income: Weekly Strategy - CommBank · PDF fileAustralian curve is starting to realise...