Fixed Income: Weekly Strategy - CommBank · Fixed Income: Weekly Strategy 8 October 2012 ... bills...

Fixed Income: Weekly Strategy 8 October 2012

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] Philip Brown Quantitative Strategist T. +612 9118 1090 E. [email protected]

Reassessing value in the front end of the curve after the big rally

Multiple RBA cuts remain likely over time and AUD bonds should generally remain well supported.

But much has now been priced in and negative carry is large at the front end of the curve. We implement a flattener.

We also move to pay the AUD 6M*1Y against NZD 6M*1Y where pricing suggests divergent RBA and RBNZ outcomes.

The Australian major bank fixed-rate bonds look very cheap compared to the FRNs.

Australian bond yields have lifted since our post RBA cut rate Weekly last Tuesday. Australian 3Y and 10Y yields are 8-10bp higher and the curve is steeper. The Aus-US spread is 2bp tighter at 133bp.

The ECB, BoE and BoJ also held meetings last week. There were no major policy announcements, but plenty of indications that easy policy is here to stay. The minutes of the latest FOMC meeting reiterated that theme while also canvassing data targets for monetary policy. While Friday’s US payrolls (+200k including revisions) were positive, the Fed will need see further and sustained improvement before contemplating any change in that policy stance. (The large 873k surge in the household jobs survey behind the 0.3%pt drop in the unemployment rate is also encouraging, but the data too volatile to put much stock in).

The weakness in long end US Treasuries following Friday’s payrolls report has pushed the Australian 3/10Y curve 3bp steeper today. The Aussie front-end has been supported by rate-cut hopes as domestic investors and economists capitulate on their views. That process could extend a little further given 2.5% looks a reasonable target for 2013. But the market is now pricing an even lower rate by April. We have been bullish on rates, but think this pricing is now a stretch given the RBA is likely to be more reactive to the economic slowdown than proactive after 150bp of cuts over the past year (and tentative signs of rising house prices). Front end ACGBs are also subject to large negative carry, making swap and credit more attractive. As Adam Donaldson explains on Page 3, we think the time is right to enter bond curve flatteners.

The resilience in credit markets and the extraordinarily low BBSW rate sets over the last week (3m BBSW/OIS spread hit 8bp), have caused the 3Y EFP to tighten sharply, stopping us out of our paid position. We sense that the spread is finding a base near current levels and that widening pressure will remerge. But catalysts for such a move aren’t yet compelling to re-enter the paid 3Y EFP trade. We do, however, retain our preference to pay the 1/3Y outright swap rate spread. We also took the opportunity to pay the 6m*1Y AUD swap against NZD (Page 7).

This week, we also analysed major bank credit and found that fixed rate bonds are very cheap to equivalent FRNs (0). The divergence is especially stark in the WBC Jul-15s. We buy the fixed rate bond on ASW vs the FRN at the current +10bp and target a spread of -8bp.

Ahead this week, the main focus for the Australian market will be on the September Labour Force figures. Our Economists look for a weak 6k increase in headline employment. Markets will also scrutinise the workforce participation rate (65.0%) which is at a 5-year low and is helping keep the unemployment rate at just 5.1%. Looking past the month-to-month volatility, we regard labour market conditions as soft and expect unemployment to rise, paving the way for lower rates.

Contents:

Key Positions......................................................................... 2 Key Trades ............................................................................ 2 High cost of bond carry suggests time to enter the flattener (First Published 5 October) .................................... 3 Paying AUD against NZD front end swap rates (First published on 5 October) ....................................................... 7 Major bank fixed rate bonds are cheap compared to FRNs (First Published 5 October) ........................................ 10 Key Views............................................................................ 12 CBA Forecasts: .................................................................... 14 Calendar – October 2012 .................................................... 15

Economists terminal RBA cash rate forecasts being revised lower

Source: CBA, Bloomberg

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Fixed Income: Weekly Strategy

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Key Positions

The market has moved to price a significant chance of a further rate cut in November and more cuts early in 2013 after the RBA cut last week. Although we expect further rate cuts eventually, we believe the market may be pricing too active an RBA in the short-term.

We have moved to reflect this view in our trading positions. We have paid 6M*1Y AUD swap vs NZD swap and we have sold the Oct-14 vs the Apr-23 ACGB (a bond flattener).

We have been stopped out of the received 3Y EFP position. Both swap spreads and bills/OIS spreads have been tightening sharply. We believe part of this is related to a change in the quality of the recent rallies. Recent moves have not been driven by European solvency fears, but by reassessment of the Australian economic outlook.

Australian bonds have continued to outperform the US, driven by the RBA rate cut and the sharp fall in the US unemployment rate.

EFP and bills spreads have tightened sharply


Key Trades

Trade Entry Current Profit Target Stop Comment Buy the TCV Jun-20 vs NSWTC May-20

0.5bp (16-Nov-11)

+1bp 0.5bp 10bp -5bp Hold: TCV’s AAA is safe and the funding task is modest. NSW is subject to some rating risk.

Buy the ACGB Aug-15 linker vs the Oct-15 (BEI to widen). Receive fixed in ZCS at 2.65%, creating

250bp (30-Mar-12)

Hold: We transformed the original trade by receiving ZCS against it. The trade is now (close to) a 14bp per annum annuity.

Receive the AUD 5Y Bills-Libor spread

33bp (25-Jun-12)

33bp +0bp 18bp 40bp Hold: We still believe the Bills/Libor should be tighter as the market calms.

Buy the Rabo Apr-15 against the ANZ May-15 on an ASW basis

47bp (4-Jul-12)

44bp +3bp+4bp carry = +7bp

30bp 60bp Hold: We think European risk aversion has pushed the Rabo too wide

Buy ACGB Apr-23 vs UST 10Y 163bp (13-Aug-12)

133bp +30bp 110bp 147bp Hold: With the RBA easing we think AUD bonds will continue to outperform and shift target and stop accordingly.

Buy the QTC Nov-14 against the NSWTC Jul-14

13bp (17-Aug-12)

9bp +4bp 0bp 18bp Hold: We extend along the QTC curve to buy the Nov-14 vs the NSWTC Jul-14. This spread should slowly compress.

Buy the GPT 6.75% 2019 bond at 215bp ASW

215bp (17-Aug-12)

185bp +30bp 180bp 240bp Hold: The GPT bond should outperform once technical factors that have been holding it back begin to recede.

Buy the NSWTC Feb-17 vs the Apr-16

13bp (27-Aug-12)

12bp +1bp 5bp 17bp Hold: The NSWTC curve is too steep, particularly compared to ACGBs.

Buy the Jun-16 ACGB on EFP basis 7.75bp (17-Sep-12)

7.50bp +0.25 2bp 10bp Hold: Futures roll has emphasised the dearness of the Dec-12 bond futures.

Pay AUD 3Y swap vs 1Y 2bp (20-Sep-12)

2bp 0bp 15bp -5bp Hold: RBA cuts and/or a widening of 3Y EFP should steepen the front end.

Pay AUD 3Y EFP 60bp (28-Sep-12)

49bp

-7bp (3-Oct-12)

75bp 53bp Stopped Out: Spreads have narrowed

Pay AUD 6M*1Y against NZD 7bp (5-Oct-12)

+3bp -4bp 30bp -7bp New Trade: RBA pricing is for cuts while RBNZ pricing is lagging

Buy the WBC Jul-15 vs the FRN 10.5bp (5-Oct-12)

10.5bp 0bp -8bp 17bp New Trade: The fixed rate bonds are very dear compared to FRNs.

Buy the Apr-23 vs the Oct-14 +58bp +62bp -4bp 40bp 65bp New Trade: The negative carry on front-end bonds is likely to combine with a wind-back of RBA pricing and steepen the curve.

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High cost of bond carry suggests time to enter the flattener (First Published 5 October) Adam Donaldson– Head of Debt Research – 61 2 9118 1095– [email protected] Philip Brown – Fixed Income Quantitative Strategist – 61 3 9675 7522 – [email protected]

Front end bonds have large negative carry. Yields need to fall a lot in order for bonds to outperform a cash deposit.

However, lower volatility in front-end bonds means short-dated bonds are even less likely to rally as needed.

We implement a flattener in ACGBs. Cheap/dear analysis steers us to sell the Oct-14 and buy the Apr-23 at 58bp.

Credit concerns have lessened recently. Swaps and credit product have become a more attractive substitute for bonds in achieving duration.

The front end of the ACGB curve has been inverted for a while now. The inversion creates a substantial negative carry on front-end ACGBs.

Although the RBA cut rates earlier this week, the overall situation has not changed much. Front-end bonds still have yields much lower than the OIS rate, which causes negative carry on those bonds.

We have also compared the carry required for each bond to that bond’s yield volatility. Front-end bonds come up worse on this measure too. For the very shortest bonds, a movement of around 50% of the historical standard deviation is required just to break even. That’s a big ask.

We continue to expect that the RBA will deliver multiple rate cuts over time. Our read from this week’s RBA statement is that further easing is likely in the near-term. But, with the market currently pricing in a 78% chance of a November cut, that risk looks to be already incorporated in current market pricing.

The low level of the cash rate, and fears of stimulating a speculative bounce in property and credit, mean the RBA should remain reactive rather than proactive to the unfolding slowdown. That suggests slower easing than what the market is currently pricing. As such, we are cautious that the front end of the bond curve could pull-back following the recent strong run. But the back-end of the curve should continue to benefit from the very strong thematic that the end of the mining boom presents. We move to implement an ACGB curve flattener.

We think the severe negative carry on bonds as well as the more constructive expectation of credit performance in a rally is part of the explanation for the massive tightening in bank bills and swap spreads over recent weeks.

Current carry on bonds

As Figure 1 shows, the 3M carry on Australian bonds is almost uniformly negative. However,

Figure 1: Carry on ACGBs


Figure 2: Yields mostly below cash


Australian 3M Carry onBond Long position Spot Yield Fwd Yield

15-May-13 -16 2.85% 2.69%15-Dec-13 -13 2.62% 2.49%15-Jun-14 -10 2.55% 2.45%21-Oct-14 -9 2.46% 2.37%

15-Apr-15 -8 2.44% 2.36%21-Oct-15 -6 2.45% 2.39%15-Jun-16 -5 2.45% 2.40%15-Feb-17 -4 2.46% 2.42%21-Jul-17 -3 2.54% 2.51%

21-Jan-18 -3 2.60% 2.57%15-Mar-19 -2 2.71% 2.69%

15-Apr-20 -1 2.79% 2.78%15-May-21 -1 2.88% 2.87%

15-Jul-22 -1 2.96% 2.96%21-Apr-23 0 3.05% 3.05%21-Apr-24 0 3.17% 3.17%21-Apr-27 1 3.37% 3.37%

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negative carry is les s than 1bp per month past the 7Y point. The front end bonds are the ones with serious negative carry. The May-13 carry is -16bp per 3M and even the Oct-14 has negative carry in the double digits.

Figure 2 shows that almost all bonds have yields below the cash rate (and the 3M OIS rate of 3.08%). That comparison is the primary driver of bond carry. When the bond yield is below the OIS rate, the bond does not return as much as an investment in cash is expected to.

Another way to think of the carry is as a breakeven holding move. The system normally works in an upwards sloping curve, where the carry is the total sell-off a bond holder can endure and still end up indifferent between owning the bond and investing in cash. Since the curve is currently inverted, the carry figure can be interpreted as the total movement in favour of the bond holder (a rally) required before the bond will breakeven against a cash investment. So, for example, an owner of the Dec-13 requires the current spot yield of 2.62% to fall to 2.49% over a three month holding period for the return on the bond to equal the return from holding cash (assuming RBA rates fall in line with OIS expectations).

If we instead assume that the cash rate doesn’t fall in line with OIS, but stays constant, the carry on bonds looks even more diabolical. (See Figure 3.) The May-13 bond would need to drop 29bp in yield over the next three months so that the return would equal an investment in cash at the current rate of 3.25% (unchanged).

How likely is such a move in rates?

Front-end bonds could obviously achieve this type of move if the RBA does cut hard and quickly. We are wary of the room for markets and economists to capitulate on their views, perhaps even engaging in a ‘bidding war’ with respect to how much easing they project.

The May 2013 bond rallied around 150bp in the three months to early June, illustrating the risk. But the bulk of that move occurred before the May and June rate cuts, as the market prepared itself for the change in policy. Ultimately, the RBA disappointed expectations it would cut 50bp in June, and the bond quickly backed up 30bp – as the negative carry came to the fore.

If we think of the carry of a bond as the breakeven move, we can use the historical volatility of a bond to assess how likely a move of that magnitude (13bp) is.

This process only reinforces how exceptionally poor the carry is on front end bonds. Over the last three months, the most volatile (in a statistical sense) part of the bond curve has been the 3Y-4Y part of the curve. This is not

Figure 3: Carry if we assume no move in cash


Figure 4: Carry vs expected moves (simple)


Figure 5: Carry vs expected moves (advanced)


Australian 3M Carry 3M CarryBond Using OIS Using Cash15-May-13 -16 -2915-Dec-13 -13 -1815-Jun-14 -10 -1321-Oct-14 -9 -1215-Apr-15 -8 -1021-Oct-15 -6 -815-Jun-16 -5 -715-Feb-17 -4 -621-Jul-17 -3 -5

21-Jan-18 -3 -415-Mar-19 -2 -315-Apr-20 -1 -2

15-May-21 -1 -115-Jul-22 -1 -1

21-Apr-23 0 -121-Apr-24 0 021-Apr-27 1 0

Australian 3M Carry on % of Ave Daily Days ChgBond Long position 3M range Change req15-May-13 -16 35% 2.70 5.8515-Dec-13 -13 16% 3.40 3.9215-Jun-14 -10 14% 3.53 2.8721-Oct-14 -9 13% 3.66 2.4915-Apr-15 -8 10% 3.94 1.9421-Oct-15 -6 9% 3.94 1.5615-Jun-16 -5 7% 3.99 1.2915-Feb-17 -4 6% 3.95 1.1321-Jul-17 -3 5% 3.90 0.89

21-Jan-18 -3 4% 3.86 0.7515-Mar-19 -2 2% 3.76 0.4515-Apr-20 -1 2% 3.71 0.31

15-May-21 -1 1% 3.62 0.2115-Jul-22 -1 1% 3.58 0.14

21-Apr-23 0 0% 3.56 0.0321-Apr-24 0 0% 3.55 -0.0621-Apr-27 1 -1% 3.53 -0.19

Australian 3M Carry on 1 SD Number ofBond Long position Move Std Devs15-May-13 -16 35 0.4615-Dec-13 -13 44 0.3015-Jun-14 -10 47 0.2221-Oct-14 -9 47 0.1915-Apr-15 -8 52 0.1521-Oct-15 -6 52 0.1215-Jun-16 -5 52 0.1015-Feb-17 -4 52 0.0921-Jul-17 -3 51 0.07

21-Jan-18 -3 50 0.0615-Mar-19 -2 48 0.0315-Apr-20 -1 48 0.02

15-May-21 -1 46 0.0215-Jul-22 -1 46 0.01

21-Apr-23 0 46 0.0021-Apr-24 0 45 0.0021-Apr-27 1 46 -0.01

Front-end bonds unlikely to move far enough to break even



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unusual; the 3Y sector is normally more volatile than the 10Y. Moreover, as the front of the curve crushes down towards the cash rate the volatility falls. This makes the 1Y and 2Y bonds less volatile than the 3Y most of the time.

Figure 4 shows the carry on Australian bonds along with some of the more intuitive measures of volatility. For example, the 16bp move required for the May-13 bond to break even represents 35% of that bond’s 3M trading range (which is 2.81% to 3.255%). The absolute average daily change in the May-13 bond is 2.75bp. To return the 16bp of carry required the bond would need to move in your favour for 5.8 consecutive average daily moves. If that sounds unlikely, it’s because it is.

Figure 5 uses a more sophisticated measure of volatility (log-normal returns) and reinforces the same basic conclusions from Figure 4. The standard deviation of the May-13 over the next three months is expected to be 35bp. The required breakeven move represents 0.46 standard deviations. A 0.5 standard deviation move is not impossible, but as the minimum required simply to breakeven, it is not an attractive proposition. It seems likely you would do better simply investing in the overnight cash rate.

Credit risk and bond alternatives

So why would you buy a front end bond? The short answer is that you probably wouldn’t. The slightly longer answer is that you might, if you were concerned about the credit risk of the other major alternatives. We think investors used to be very concerned about bank credit, but have been becoming less so in recent weeks.

The most recent Australian bond rally has had a different character to the ones which came early this year and last year. The earlier rallies were premised on a global systemic collapse. Mostly, a collapse triggered by European sovereigns and so causing a global banking credit problem. The more recent rally is due to an economic slowdown in China and Australia without specific credit concerns.

Although the overall impact on yields has been similar in both situations (interest rates fall), the impact on credit spreads is very different. In the first scenario, bonds rally and swap spreads widen, making it very preferable to own a bond. So advantageous, in fact, that it is easy to see why investors would own the bond despite the very poor carry characteristics.

In the current domestic slowdown scenario, however, both bond and swap can be expected to fall more-or-less at the same pace. As such, in the most recent rally there should have been more interest in receiving swap than in buying

Figure 6: Contraction of Bills/OIS and EFP


Figure 7: Fitted ACGB curve


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We continue to expect that the RBA will deliver multiple rate cuts over time. Further easing seems likely in the near-term, but is well discounted as long as the RBA doesn’t move in 50bp licks, which we think unlikely.

The low level of the cash rate, and fears of stimulating a speculative bounce in property and credit, mean the RBA should remain reactive rather than proactive to the unfolding slowdown. That suggests slower easing than the market is currently pricing.

Expensive carry at the front end of the bond curve means we could easily see a pull-back following the recent strong run. But the back-end of the curve should be less subject to this pressure. We move to implement an ACGB curve flattener. Cheap/dear analysis would steer us to go long the 2018 bond (Figure 8), but we prefer to go further out. We opt for the April 2023 versus the October 2014 bond.

Figure 9 shows this pairing has also steepened up nicely in recent times, but did flatten markedly following market disappointment with the RBA in early June. We enter at a spread of 58bp, targeting 40bp, with a stop at 65bp.

bonds. Bonds have serious negative carry while swaps have only marginally negative carry. With hindsight, there are good reasons why swap spreads and bank bill spreads have tightened so sharply recently.

Implications for swap

The market is expecting a rally, but a rally where bond and swap perform similarly. The bonds have very severe negative carry while the swaps have only minor negative carry. Since credit is no longer a primary concern nor a primary driver of the rally, receiving swap (or buying bank bills) is a much more attractive proposition than buying the bonds. As a consequence, the spreads have contracted.

As long as credit risk remains in the background (which may or may not happen) we wouldn’t expect the spreads to widen. The sharply negative carry on bonds simply makes the swaps a more attractive method to add duration to a portfolio. We are not sure how much further the spreads can tighten though. The Bills/OIS spread, in particular, has already tightened to exceptionally low levels.

Of course, should any hint of credit concerns return to international markets then swap spreads are likely to push wider again quickly, since the swaps are no longer a substitute for bonds in achieving duration.

Positioning

We have been surprised by the extent of the contraction in swap spreads, and stopped out of a trade implemented last week. However, consideration of carry provides some greater rationale for the recent move.

Figure 8: Cheap/dear analysis


Figure 9: ACGB curve movements


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If credit re-enters the frame, swap spreads will widen

With substantial rate cuts priced, now is a good time to enter a bond flattener



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Paying AUD against NZD front end swap rates (First published on 5 October) Alex Stanley – Associate Analyst, Fixed Income – 61 2 9118 1125 – [email protected]

The market is pricing a sharp convergence in RBA and RBNZ policy rates.

While we can rationalise the convergence from an economic perspective, we see good risk/reward and attractive carry in positioning for wider front end spreads between AUD and NZD swap.

We pay the 6M*1Y AUD-NZD swap spread.

The spread between front end swap rates in AUD and NZD has tightened considerably in recent weeks. The 1Y*1Y and 2Y*1Y AUD-NZD spreads hit zero this week and, as we write, are close to zero. The tightening move has mostly been underpinned by the RBA rate cut and expectations for follow up RBA easing. The NZD market remains reluctant to price in much risk of easing.

We re-visit some of our earlier research and consider the case for RBA and RBNZ policy convergence. We can build the case for monetary policy parity, but see the relative front valuations as stretched.

RBA and RBNZ parity this time next year?

The AUD and NZD swap markets are pricing a convergence in cash rates by this time next year (Figure 2). We’ve covered the policy convergence issue in prior research (see Fixed Income Strategy, July 11). Our last discussion concluded that such an outcome was possible, but most likely if there were a major (European) exogenous shock. The debate has now moved on given the weaker backdrop in China and impact on Australia’s national income, capex and exports.

We continue to expect that the RBA will deliver multiple rate cuts over time. Our read from this week’s RBA statement is that further easing is likely in the near-term based on the RBA’s acknowledgement of three key factors: a softer outlook for the resources sector, a weaker global growth outlook and expectations for low inflation over the next year or two. But the low level of the cash rate, and fears of stimulating a speculative bounce in property and credit, mean the RBA should remain reactive rather than proactive to the unfolding slowdown. That suggests slower easing than what the market is currently pricing.

The RBNZ is facing similar issues, but the hurdle to cut rates is higher given cash is already at 2.5%. Still, at the end of the day, one market looks to be aggressively pricing rapid-fire rate cuts while the other virtually nothing at all. We think this combination is unlikely.

Fundamental drivers

Looking at a few key metrics, we can see that Australia isn’t quite the same as NZ in economic terms (Figures 3-5). First, we note that key NZ dairy prices haven’t dropped as sharply as Australia’s iron ore prices in recent months. This difference lends support to the recent underperformance of kiwi rates. But that relative benefit to NZ is partly offset by the sharp drop in the AUD/NZD exchange rate from 1.30 to 1.24. The NZD is looking even more resilient than the AUD.

Figure 1: AUD-NZD front end swap spreads


Figure 2: Implied cash rate pricing*


*From OIS curve in NZD and IB futures in AUD

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Other indicators are mixed. Australia still has a comparatively low unemployment rate. But, as the RBA acknowledged this week, that favourable differential masks underlying weakness in the Australian labour market. Next Thursday’s Labour Force figures are likely to highlight that weakness again, even if the unemployment rate remains low.

Perhaps a more ominous sign supporting the case for monetary policy convergence is the overall growth outlook for the respective economies. We estimate Australia and New Zealand’s real growth performance is roughly on par if we discount the contribution of the mining sector from Australia’s GDP.

Trade linkages are also an important consideration. A softer Australian growth outlook from weaker commodity prices and downgrades to investment and mining also has adverse implications for the NZ economy, as Australia is NZ’s biggest trading partner (22% of NZ exports go to Australia).

Overall, we can’t rule out the possibility of the RBA cutting the cash rate to 2.5%, while the RBNZ stays on hold. But that is already fully discounted. We find it harder to see a case for the RBA to move cash under the RBNZ. An exogenous shock from Europe or the US would impact both economies and markets and leave scope for RBNZ pricing to fall further. An adverse shock from China would impact both economies severely (China is Australia’s largest trading partner and NZ’s second largest), but Australia more. The absence of such a shock could see the Australian economy continue to outperform NZ.

Front end swap spread wideners a good risk/reward bet

It seems unlikely the AUD market can price an RBA cash rate much under the RBNZ rate. RBA pricing has more room to move in an upward direction. RBNZ more on the downside. As such, it’s an attractive risk/reward bet to position for a wider front end spread, while differentials are flat or near to flat.

To trade our view, we considered both OIS and swap spread trades. Because of a sharp decline in bank bill spreads to OIS, the credit built into both AUD and NZD front end swap rates is quite low by historical standards (Figure 6). Moreover, the AUD bill/OIS spread is 5bp lower than the NZD bill/OIS spread, which is somewhat unusual. We sense there isn’t much further downside in AUD bill spreads. And while upside pressure on bill spreads has been lacking over the last week, there’s more room for widening than tightening, in our view.

So the question then becomes which tenor in front end swap curves should we target? Price

Figure 3: AUD-NZD Unemployment Rate and Swap Spread


Figure 4: Key commodity prices


Figure 5: Australia and NZ growth comparison

Source: CBA, ABS, RBA, Bloomberg

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Australian and NZ growth performance is comparable if we discount the impact of mining on the Australian economy.

A convergence in cash rates is possible, but it’s more difficult harder to see a lower RBA than RBNZ rate.

With spreads near flat, widening positions are attractive on a risk/reward basis.



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action in AUD-NZD front end spreads has mostly been driven by the AUD leg, so the state of play in the AUD front end is the best place to start our positioning view. Figure 2 shows that the Aussie market is pricing quite a front-loaded easing cycle. The market looks for 75bp of RBA easing in 6 months and just under 100bp in 1 year.

Conclusion

Large shocks to the market and economy could see the RBA move even quicker than this. But our judgement is that such shocks would also drive NZ rates lower and benefit a paid AUD versus NZD position. We think the sweet spot for AUD-NZD spread wideners is at the 6m*1Y point. An added advantage of paying the 6m*1Y spread is the positive carry pickup, from being short the inverse AUD curve and long the relatively flat NZD curve.

We pay the 6m*1Y AUD-NZD spread at 7bp and target 30bp, with a stop at -7bp.

Figure 6: 3m bank bill/OIS spreads


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We pay the 6M*1Y AUD-NZD swap spread.



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Major bank fixed rate bonds are cheap compared to FRNs (First Published 5 October) Philip Brown – Fixed Income Quantitative Strategist – 61 3 9675 7522 – [email protected]

Australian major bank fixed-rate bonds are looking quite cheap compared to maturity-matched FRNs.

This can indicate a desire by money managers to be short duration following the sharp drop in outright yields.

The WBC Jul-15 bond’s differential is particularly wide at +10.5bp. We buy the fixed rate and target a spread of -8bp.

Bank fixed rate bonds look very cheap compared to equivalent FRNs at the moment. In theory, the q/q asset swap of a fixed rate bond and the traded margin for an FRN should be the same (assuming the same maturity and issuer).

Figure 1 shows the average difference between fixed and floating rates on matched pairs of bank bonds (Fixed – FRN). Because the fixed rates are quoted on a semi-semi basis in the chart, the fair price for the spread is actually around -12bp (or whatever the 3v6 domestic basis is). In recent weeks, the fixed rate bonds have cheapened compared to their paired FRN (which shows in the chart as a rise in the measure).

Sometimes, movements in the differential between fixed and floating bonds reflect an overall duration view by real money clients. As Figure 2 shows, some of the larger moves in the differential have occurred at the same time as significant moves in outright yields.

There is no consistent relationship between the level of the Fixed-FRN basis and the level of rates, though. Sometimes, a sharp rally indicates that real money managers are trying to lengthen duration and so will prefer to buy fixed rate bonds. However, at other times, a sharp rally might be considered overdone, so real money managers would try to shorten duration in anticipation of a sell-off. Although an ASW and an FRN are interchangeable on a theoretical level, not all clients are able to do the necessary swaps. As such, the distinction between ASW and FRNs serves as a good proxy for the duration position real money managers would like to have (but may be prevented from having by mandates or the cost of transacting swaps).

In the current situation, the cheapness of fixed rate bonds suggests that money managers prefer to take credit risk without duration risk. That is understandable. Bond yields are near their lows, swap rates are at record lows and multiple RBA rate cuts are already discounted. But it has still left fixed rate bonds cheap at the moment relative to FRNs.

Note that this is not a credit spread effect. Although credit spreads are tight at present, a

Figure 1: Difference between fixed and floating rates for Australian major banks (year averages)

Source: CBA Spectrum

Figure 2: Fixed to FRN basis and the 3Y Swap rate

Source: CBA Spectrum, Bloomberg

-30

-25

-20

-15

-10

-5

0

5

10

15

Jan-11 Jul-11 Jan-12 Jul-12

2015 2016 2017

-25

-20

-15

-10

-5

0

5

10

15

20

25

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12

3Y Swap Rate 2015 Ave FXD-FRN (rhs)



11

widening in credit spreads harms an FRN as much as a fixed rate bond. A widening of swap spreads from here would probably see fixed rate bonds underperform FRNs and might justify some of the cheapness of fixed rate bonds.

A rally based on fundamentals, not fear

The current Australian bond rally doesn’t have quite the same feel as previous rallies. This is a rally based on Australian fundamentals not fear of a European calamity. If commodity prices remain low and the investment boom turns as expected, the RBA will continue to cut rates and there will be a general rally and steepening in the bond curve.

As such, we think the fixed rate bonds will eventually come back into favour vs FRNs. The fixed rate is actually an asset of the bond in the medium term (we think) because fixed rates outperform as rates fall.

However, as Figure 3 shows, there are a number of pairs of bonds where the fixed rate bond is as much as 10bp cheaper than the FRN.

We think the fixed rate bonds are attractive here and move to buy the WBC Jul-15 Fixed vs FRN at +10.5bp. (Subject to execution.)

A note on execution

This trade is difficult to execute. It cannot normally be executed immediately simply by ringing a trader and receiving an immediate price. Usually, an order must be left. As such, the price we have quoted above is indicative only.

However, there are multiple pairs of bonds which are currently sitting near our observed entry price. It should be possible to be “set” in one of the bonds at around this price, even if not the WBC bond we have specifically highlighted.

A final point is that the executable price on the swap required to convert the fixed-rate bond back to a floating exposure will differ depending on whether or not a two-way collateralised credit agreement is in place. Where such an agreement exists, the extra charge for credit should be minimal. However, if no agreement exists, the credit charge may swamp the attractiveness of the trade.

Figure 3: Fixed to FRN basis for 3Y bank bonds

Source: CBA Spectrum

-30

-20

-10

0

10

20

Jan-12 Mar-12 May-12 Jul-12 Sep-12

CBA Jul-15 NAB Nov-15

WBC Jul-15 WBC Nov-15



12

Key Views

United States

Tactical (<1 mth)

Strategic (>3 mths)

Momentum in the US economy has slowed. Q2 GDP growth was just 1.3% (annualised), down from 2.0% in Q1. Payrolls growth has picked up modestly, but the unemployment rate remains too high for the Fed’s comfort at 7.8%. The Fed has announced an extension of its funds rate guidance to mid-2015, US$40bn of MBS purchases per month and indicated additional asset purchases if required (contingent on labour market conditions). With the “Fiscal Cliff” approaching, we look for US Treasuries to remain well supported.

The ECB has announced a new bond purchase plan, designed to lower yields in peripheral bond markets and reduce the “convertibility” risk premium. Political and legal risks remain, as Governments are reticent to seek help given conditions to access EU funds and ECB support. Longer term fiscal and structural issues continue to point to sustained low core bond yields.

The US-G10 two-year swap spread suggests we should see some modest USD strength. EUR/USD should remain well-supported between 1.2800 and September’s high of 1.3172. In the short-term, we anticipate EUR/USD to ease back to 1.2800 as uncertainty over the health of the Spanish economy persists. Eurozone economic data remains weak; the recession is yet to bottom. Japanese investors remain discouraged from investing offshore, and Japan’s current account surplus continues to generate capital inflow. Low vol. suggests USD/JPY will remain in a narrow 77.50 to 79.33 range for now.

Policy rate 0.1% 0.1%

10yr bond 1.5% 1.4%

2/10 curve 125bp 115bp

USD/JPY 77.50 78.00

EUR/USD 1.2800 1.2500

Australia

Tactical (<1 mth)

Strategic (>3 mths)

The RBA cut the cash rate again in October as we expected, acknowledging that soft global growth, declining commodity price/terms of trade and the high AUD make it “appropriate for the stance of monetary policy to be a little more accommodative.” We think there is more easing to come over time, but that language continues to suggest the RBA will take a reactive rather than proactive approach.

The end of the commodity price and associated capex boom means more will probably have to be done to stimulate domestic demand. Strength in the AUD against this backdrop is inherently disinflationary – we look for rates to remain low for an extended period as the Australian economy navigates this difficult path. While there may be some ‘buy the rumour, sell the fact’ profit-taking following in the near-term, we continue to look for Australian bond yields to fall further as the AUS-US 10Y spread moves closer toward 100bp.

The near-term risk for AUD/USD is for more downward pressure, driven by: (a) an unwinding of long AUD/EUR positions; (b) a softening in the Australian labour market; (c) further RBA interest rate cuts; (d) softer economic data from China. A dip to 1.0105 remains the near-term risk. But sustained demand for Australia’s high-yielding AAA rated sovereign bonds as well as further AUD reserve currency accumulation should maintain a solid degree of support for the AUD despite current downward pressure. While a lower Australian terms of trade will squeeze recent income growth, the net impact on the economy and the RBA’s cash rate will not be enough to offset the capital demand for the AUD.


10yr bond 2.9% 2.7%


10yr EFP 80bp 90bp

10yr v US 130bp 120bp

AUD/USD 1.0105 1.05000

New Zealand

Tactical (<1 mth)

Strategic (>3 mths)

The RBNZ continues to keep the OCR at a historically low 2.5%. The RBNZ recently revised down its NZ growth outlook to factor in weaker export incomes and tighter fiscal policy than earlier forecasts. The risk of a rate cut largely emanates from softer global conditions. NZ rates are likely to remain low and the curve is likely to flatten, reflecting low global bond yields. The 90-day rate guidance in the latest MPS suggests there could be no lift in the OCR until Q4 2013. There is not enough easing priced into the NZD swap curve relative to the large RBA easing priced into AUD. We look for the AUD-NZD 6m/2Y rate spread to widen.

The RBNZ appears comfortable with current monetary policy settings given inflation and inflation expectations remain well-behaved. These local developments, combined with the recent monetary policy stimulus by the Fed and explicit guidance of US interest rates being on hold at least until mid-2015 suggests very little NZD/USD downside. The risk is a dip in NZD/USD to 0.8100.


10yr bond 3.3% 3.2%


10yr v US 170bp 180bp

10yr v AU 60bp 70bp

NZD/USD 0.8100 0.8300

AUD/NZD 1.2540 1.2650 \\\



13

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 3.25 0 Current 2.50 0 Current 0.17 06-Nov-12 3.05 -80 13-Sep-12 2.50 0 1-Aug-12 0.16 -14-Dec-12 2.89 -144 25-Oct-12 2.48 -7 13-Sep-12 0.16 -15-Feb-13 2.70 -219 6-Dec-12 2.42 -33 24-Oct-12 0.14 -105-Mar-13 2.56 -275 31-Jan-13 2.40 -41 11-Dec-12 0.13 -162-Apr-13 2.48 -308 14-Mar-13 2.36 -56 30-Jan-13 0.13 -167-May-13 2.42 -331 24-Apr-13 2.30 -81 20-Mar-13 0.12 -214-Jun-13 2.39 -344 13-Jun-13 2.32 -73 1-May-13 0.12 -202-Jul-13 2.37 -353 19-Jun-13 0.12 -206-Aug-13 2.35 -362 31-Jul-13 0.13 -16

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

Rate of +25bp Rate of +25bp Rate of +25bpCurrent 0.90 0 Current 0.02 Current 0.42 05-Jun-12 0.95 -20 8-Nov-12 0.13 45 8-Nov-12 0.39 -1317-Jul-12 0.95 -20 6-Dec-12 0.02 0 6-Dec-12 0.35 -285-Sep-12 0.95 -20 10-Jan-13 0.06 15 10-Jan-13 0.34 -3123-Oct-12 1.08 50 7-Feb-13 0.06 14 7-Feb-13 0.32 -384-Dec-12 1.01 26 7-Mar-13 0.06 16 7-Mar-13 0.32 -406-Sep-13 1.14 3 4-Apr-13 0.06 16 27-Jan-12 0.43 4

2-May-13 0.07 14 15-May-13 0.30 -487-Feb-13 0.06 14 15-May-13 0.30 -48

7-Mar-13 0.06 16 8-Jun-13 0.28 -54

0.00

1.00

2.00

3.00

4.00

Oct Dec Feb Apr Jun Aug Oct

AUD Implied Cash Rate

1.50

1.70

1.90

2.10

2.30

2.50

2.70


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

1.40


CAD Implied Cash Rate

0.00

0.20

0.40

0.60

0.80

1.00


GBP Implied Cash Rate

0.00

0.20

0.40

0.60

0.80

1.00


EUR Implied Cash Rate



14

CBA Forecasts:

Cash rate 8-Oct Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14US 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25Australia 3.25 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00New Zealand 2.50 2.50 2.50 2.75 3.00 3.25 3.50 3.75 4.00 4.00United Kingdom 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25 1.25Euro-zone 0.75 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25 1.25Japan 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10Canada 1.00 1.00 1.00 1.25 1.50 1.75 1.75 2.00 2.00 2.002-yr bond yield 8-Oct Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14US 0.26 0.25 0.30 0.30 0.30 0.35 0.35 0.40 0.40 0.50Australia 2.45 2.40 2.30 2.30 2.50 2.60 2.70 2.90 3.00 3.10New Zealand 2.58 2.30 2.30 2.40 2.70 3.20 3.40 3.60 3.70 3.70United Kingdom 0.21 0.10 0.10 0.20 0.30 0.50 0.90 1.30 1.50 1.70Germany 0.06 0.00 0.10 0.20 0.20 0.30 0.70 1.00 1.25 1.50Japan 0.10 0.10 0.15 0.15 0.20 0.20 0.20 0.25 0.30 0.35Canada 1.14 1.00 1.10 1.30 1.50 1.80 2.10 2.20 2.20 2.2010-yr bond yield 8-Oct Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14US 1.74 1.40 1.40 1.40 1.60 1.80 2.00 2.20 2.40 2.60Australia 3.07 2.70 2.50 2.50 2.70 2.90 3.00 3.20 3.40 3.60New Zealand 3.49 3.40 3.30 3.30 3.40 3.70 4.00 4.20 4.20 4.20United Kingdom 1.77 1.40 1.40 1.50 1.60 1.80 2.00 2.20 2.40 2.50Germany 1.52 1.20 1.10 1.20 1.40 1.60 1.80 1.90 2.00 2.00Japan 0.78 0.80 0.90 0.90 1.00 1.00 1.10 1.10 1.20 1.20Canada 1.81 1.60 1.70 1.80 2.00 2.30 2.50 2.70 2.90 3.00

Currencies 8-Oct Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14AUD/USD 1.02 1.05 1.04 1.04 1.04 1.04 1.04AUD/JPY 80.02 82.95 83.20 84.24 85.28 86.32 87.36AUD/EUR 0.78 0.84 0.82 0.80 0.79 0.79 0.78AUD/GBP 0.63 0.66 0.65 0.64 0.63 0.63 0.63

AUD/CAD 0.99 1.07 1.03 1.03 1.02 1.02 1.03AUD/NZD 1.24 1.27 1.25 1.24 1.27 1.27 1.27USD/JPY 78.73 79.00 80.00 81.00 82.00 83.00 84.00EUR/USD 1.30 1.25 1.27 1.30 1.31 1.32 1.33

GBP/USD 1.61 1.58 1.60 1.62 1.64 1.64 1.64USD/CAD 0.98 1.02 0.99 0.99 0.98 0.98 0.99NZD/USD 0.82 0.83 0.83 0.84 0.82 0.82 0.82



15

Calendar – October 2012

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: Diana Mousina: 9118-6394

Monday Tuesday Wednesday Thursday Friday1 2 3 4 5

A U Labo ur D ay (N SW, A C T , SA ) A U A I-Gro up P M I, Sep, Index, (45.3) A U H IA new ho me sales A ug, m%ch, ( -5 .6) A U C B A / A i-Gro up P erf o f Serv Index, Sep, (42.4) JP Leading / Co incident index CI, Aug, (93/93.8)A U R P D ata ho use prices, Sep, m%ch, (0) A U R B A cash rate , %, 3.50, (3.50) A U T rade balance A ug, A $ bn, -0 .7, ( -0 .6) A U B uilding appro vals, A ug, m%ch, 2 .0, ( -17.3) JP BoJ target rate, %, 0-0.10, (0.1)A U T D inf lat gauge Sep, m/ y%ch, (0 .6 / 2 .2) EU PPI, Aug, m/y%ch, (0.4/1.8) A U Engineering C o nstruct io n A ctivity, QII A U R etail t rade, A ug, m%ch, 0.0 , ( -0.8) GE Factory orders, Aug, m/y%ch, (0.5/-4.5)CH PM I M anufacturing, Sep, Index, (49.2) UK PM I construction, Sep, Index, (49) CH Non-M anuf PM I Sep, Index, (56.3) IN Services PM I, Sep US Non-farm payrolls, Sep, '000, (96)IN M anufacturing PM I, Sep US Total vehicle sales, Sep, mn, (14.5) EU PM I services/composite, Sep, Index, (46/45.9) EU ECB Interest Rate Decision, %, 0.50, (0.75) US Unemployment rate, Sep, %, (8.1)JP Tankan Index, QIII, Index, (-1) EU Retail sales, Aug, m/y%ch, (-0.2/-1.8) UK BoE Housing equity withdrawal, QII, £bn, (-8.8) US Consumer credit, Aug, US$bn, (-3.3)JP Vehicle sales, Sep, y%ch, (7.3) GE/UK PM I services, Sep, Index, (50.6/53.7) UK BoE announces rates, %, 0.50, (0.50) CA Unemployment rate, Sep, %, (7.3)EU/GE/UK PM I manufacturing, Sep, Index, (46/47.3/49.5) US ISM non-manufacturing, Sep, Index, (53.7) US Factory orders, Aug, m%ch, (2.8) CA Building permits, Aug, m%ch, (-2.3)UK Net consumer credit, Aug, £bn, (-0.2) US FOM C M inutes US ISM manufacturing, Sep, Index, (49.6)

8 9 10 11 12A U A i-Gro up P C I, Sep, Index, (32.2) A U N A B B us co nf/ co nd, Sep, Index, ( -2/ 1) A U M I/ WB C C o nsumer Sent, Oct, Index, (98.2) A U M I C o nsumer Inf lat io n Expectat , Oct, %, (2.4) CH Trade balance, Sep, US$bn, (26.7) (13 Oct)A U A N Z Jo b ads, Sep, m%ch, ( -2 .3) A U R B A D ep.Go v. Lo we speaks in H o bart JP M achine too l o rders, Sep, y%ch, (-2.7) A U M I C o ns. Unemplo y. Expectat , Oct, Index, (155.3) IN Industrial Production, Aug, y%ch, (0.1)A U R B A Go v. Stevens presents to H o use o f R eps. C o mmittee NZ NZIER Business opinion survey QIII, (-4) US Wholesale inventories, Aug, m%ch, (0.7) A U Labo ur F o rce, Sep JP Domestic CGPI, Sep, y/y%ch, (-1.8/0.3)GE Trade bal, Aug, €bn, (16.9) NZ Credit card spending, Sep, m%ch, (2.4) US Federal Reserve Beige Book emplo yment , '000, 6, ( -8.8) EU Industrial production Aug, m/y%ch, (0.6/-2.3)GE Industrial production, Aug, m/y%ch, (1.3/-1.4) JP Curr a/c to tal/adjusted, Aug, ¥bn, (625.4/335..4) IM F Global Financial Stability Report unemplo yment rate, %, 5.2 , (5 .1) US Producer price index Sep, m/y%ch, (1.7/2)

UK RICS house price balance, Sep, %, (-19) part ic ipat io n rate , %, 65.0 , (65 .0) US Uni. Of M ichigan confidence, OctUK Industrial production, Aug, m/y%ch, (2.9/-0.8) A U R B A H ead o f F inancial Stability Ellis speaks in SydneyUK Total trade balance, Aug, £bn, (-1.5) NZ Food prices, Sep, m%ch, (0.1)CA Housing starts, Sep, '000, (224.9) NZ Business PM I, Sep, Index, (47.2)IM F World Economic Outlook JP M achine orders, Aug, m/y%ch, (4.6/1.7)

EU ECB M onthly report US Trade balance, Aug, US$bn, (-42.0)CA Trade balance Aug, C$bn, (-2.3)

15 16 17 18 19A U M o to r veh. sales, Sep, m/ y%ch, (3 .6 / 6 .4) A U R B A B o ard M inutes, Oct A U C o nstruct io n A ct iv ity, QII A U N A B B usiness Survey, QIII NZ Credit card spending, Sep, m/y%ch, (0.1/1.9)A U H o using F inance, A ug A U Lending F inance, Sep A U B uilding A ctiv ity, QII A U R B A A s.Go v. Edey speaks in Sydney JP Leading / Co incident index, Aug N o . o f o wn-o ccupiers , %, 2, ( -1.0) NZ CPI, QIII, q/y%ch, (0.3/1.0) JP M achine too l o rders, Sep CH Industrial production, Sep, y%ch, (8.9) EU Current account, Aug, €bn, (9.7) Value o f a ll lo ans, %, 2 , ( -1.4) EU CPI, Sep, m%ch, (0.4); Core, y%ch, (1.5) EU Construction output, Aug, m/y%ch, (-0.3/-4.7) CH GDP, QIII, y%ch, (7.6) GE Producer prices, Sep, m/y%ch, (0.5/1.6)NZ PSI, Sep, Index, (50) EU Trade balance Aug, €bn, (7.9) UK Bank of England minutes CH Retail sales, Sep, y%ch, (13.2) US Existing home sales, Sep, mn/m%ch, (4.8/7.8)CH PPI/CPI, Sep, y%ch, (-3.5/2.0) EU/GE ZEW survey (econ. sentiment), Oct, (-3.8/-18.2) UK ILO unemployment rate (3mths), Aug, %, (8.1) IN CPI, Sep, y%ch, (10) CA CPI, Sep, m/y%ch, (0.2/1.2)IN Wholesale prices, Sep, y%ch, (7.6) UK PPI Input/Output/core, Sep, y%ch, (1.4/2.2/1.2) US Housing starts/Building Permits, Sep, '000, (750/803) UK Retail sales, Sep, m/y%ch, (-0.2/2.7)JP Industrial production, Aug UK CPI, Sep, m/y%ch, (0.5/2.5); Core, y%ch, (2.1) US Philadelphia Federal Index, Oct, (-1.9)JP Capacity utilisation, Aug, m%ch, (0.5) US CPI, Sep, m/y%ch, (0.6/1.7); Core, m/y%ch, (0.1/1.9) US Leading indicators, Sep, m%ch, (-0.1)US Empire manufacturing, Oct, Index, (-10.4) US Industrial production, Sep, m%ch, (-1.2) CA Wholesale sales, Aug, m%ch, (-0.6)US Retail sales, Sep, m%ch, (0.9) US Capacity utilisation, Sep, %, (78.2)US Business inventories, Aug, m%ch, (0.8)

22 23 24 25 26A U R B A A s.Go v. D ebelle speaks in Sydney US Richmond Fed, Oct A U D EWR skilled vacancies, Sep, m%ch, (0) NZ RBNZ official cash rate, %, 2.50, (2.50) NZ Trade balance, SepJP Trade bal to tal/adj, Sep, ¥bn, (-754.1/472.8) CA Retail sales, Aug A U C P I, QIII, q/ y%ch UK GDP, QIII, q%ch, (-0.5) JP CPI, Sep

CA Bank o f Canada, %, 1.00, (1.00) H eadline, 1.3 / 1.9 , (0.5/ 1.2) US Durable goods orders, Sep US GDP, QIII R B A Underlying, 0.6/ 2.2 , (0 .6/ 2.0) US Pending home sales, Sep

A U R B A H ead o f F inancial Stability Ellis speaks in Sydney US Initial/Continuing jobless claimsCH HSBC Flash PM I M anufacturing, Oct (47.6)GE IFO - Business climate, OctUS New home sales, Sep, '000, (372)US FOM C rate decision, %, 0-¼, (0.25)CA Bank of Canada M onetary Po licy Report

29 30 31 Central Bank Meetings Early NovemberJP Retail sales, Sep A U H IA new ho me sales, Sep A U B uild appro v, Sep AU RBA (2 October) AU Intl. Trade Prices (1 November)GE CPI, Oct A U R B A D ep.Go v. Lo we speaks at C B A co nference in Sydney A U P rivate secto r credit , Sep UK BOE (4 October) AU PPI (2 November)UK Net consumer credit, Sep IN RBI Interest Rate Decision, (8.0) NZ Building permits, Sep EZ ECB (4 October) AU Annual National Accounts (2 November)US Personal income/spending, Sep JP Industrial/Vehicle production, Sep NZ NBNZ Business confidence, Oct JP BoJ (5 October, 30 October) AU Trade Balance (5 November)US PCE deflator/core, Sep JP BoJ target rate JP Construction orders/Housing starts, Sep CA BOC (23 October) AU Retail Trade (5 November)US Dallas Fed, Oct GE Retail sales, Sep UK GfK consumer confidence survey, Oct US FOM C (24 October) AU RBA Board M eeting (6 November)

US S&P/Case-Shiller home price index, Aug US Employment cost index, QIII, q%ch, (0.5) NZ RBNZ (25 October) AU House Prices (6 November)IN RBI (30 October)



16

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17

Research

Commodities Telephone Email Address

Luke Mathews

Lachlan Shaw

Vivek Dhar

Agri Commodities

Mining & Energy Commodities

Mining & Energy Commodities

+612 9118 1098

+613 9675 8618

+613 9675 6183

[email protected]

[email protected]

[email protected]

Economics Telephone Email Address

Michael Blythe

Michael Workman

John Peters

Diana Mousina

Chief Economist

Senior Economist

Senior Economist

Associate Economist

+612 9118 1101

+612 9118 1019

+612 9117 0112

+612 9118 6394

[email protected]

[email protected]

[email protected]

[email protected]

Fixed Income Telephone Email Address

Adam Donaldson

Philip Brown

Alex Stanley

Steve Shoobert

Tariq Chotani

Tally Dewan

Kevin Ward

Head of Debt Research

Fixed Income Quantitative Strategist

Associate Analyst, Fixed Income

Chief Credit Strategist

Credit Research Analyst

Credit Research Analyst

Database Manager

+612 9118 1095

+612 9118 1090

+612 9118 1125

+612 9118 1096

+612 9280 8058

+612 9118 1105

+612 9118 1960

[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

Daniel Smith

ASB Chief Economist

Economist

Economist

Economist

+649 301 5659

+649 301 5660

+649 301 5661

+649 301 5853

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+44 20 7329 6266

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+852 2844 7539

+65 6349 7074

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Syd

Asia

Lon/Eu

NY

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+613 9675 6967

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+1212 336 7749

Corporate Telephone

NSW

VIC

SA/NT

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QLD

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Fixed Income: Weekly Strategy - CommBank · Fixed Income: Weekly Strategy 8 October 2012 ... bills...

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