Global Markets Research

Weekly Strategy

3 June 2013

Adam Donaldson Head of Debt Research T. +612 9118 1095 E. adam.donaldson@cba.com.au Philip Brown Quantitative Strategist T. +613 9675 7522 E. philip.brown@cba.com.au Alex Stanley Interest Rate Strategist T. +612 9118 1125 E. alex.stanley@cba.com.au Tariq Chotani Credit Research Analyst T. +612 9280 8058 E. tariq.chotani@cba.com.au Tally Dewan Credit Research Analyst T. +612 9118 1105 E. tally.dewan@cba.com.au

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

Bond bears still in control

The backup in US Treasury yields should continue to add steepening pressure to the ACGB curve.

We expect the RBA to remain on hold tomorrow, but ultimately expect further RBA easing to help tighten Aus-US yield spreads.

We continue to look for cash spreads to outperform CDS spreads.

Volatility remains elevated, as markets contemplate a potential shift in Fed policy. Shortly after our last Weekly note, US Treasury yields broke higher again, taking out key yield resistance levels. The US 10Y yield reached 2.23%– the highest level since April 2012 – before rallying back to 2.14% (up 14bp on the last week). We expect the market to remain under bearish pressure this week, ahead of the important US payrolls release on Friday. If payrolls and other data confirm the US recovery is on solid ground, then risk markets should hold up and limit any potential second round safety bid for bonds.

For the Aussie market, we expect the key themes of the last week to continue. A backup in US long end yields should add more steepening pressure to the Aussie curve and compress the Aus-US 10Y spread.

We look for the RBA to keep the cash rate on hold at tomorrow’s meeting (implied probability of a cut is 13%), but expect the market to continue pricing a terminal rate of 2.25-2.50%. Last week’s Q1 capex survey didn’t provide the smoking gun required to get a June rate cut over the line (a more meaningful deterioration in capex figures is likely as the 2013/14 FY gets underway). Moreover, timely monthly data, such as employment and building approvals have held up. The precipitous fall in the AUD is another reason for the RBA to revert to watching and waiting for now.

QLD and SA release their 2013/14 Budgets this week. QLD have already flagged that their Budget will feature some deterioration - including a deferral of their surplus target until 2015/16. We expect QLD’s Budget to confirm that a broader fiscal turnaround is still in prospect. QTC remains our preference in the semi market and we retain our long QTC positions against NSWTC and ACGBs. We also remain constructive on long end swap spreads and this week we added a 3/10Y EFP box flattener.

CDS markets continued to move out last week giving back a substantial part of year-to-date gains, but cash spreads remained relatively steady. While new issuance fatigue is evident, with the majority of new issues trading close to re-offer, we expect cash spreads to remain well supported because of a combination of limited supply, a healthy maturity profile, relatively strong corporate fundamentals and a still accommodative monetary policy globally.

While we expect the iTraxx Australia to remain volatile in line with Global CDS indices and equity market volatility, we expect cash to outperform CDS in the near term. We have booked profits on our short-end SSA trade and initiated a new Sub/Senior trade. Our views on individual markets are, as usual, detailed inside.

ACGB curve steepening and AUS-US spread compression remain dominant themes

Source: Bloomberg, CBA

Key Strategy Views

Tactical (<2 mth)

Strategic (>6 mths)

Policy rate* 2.75% 2.50%

3yr bond 2.8% 2.9%

10yr bond 3.5% 3.7%

10yr BEI 270 280

3/10 curve 80bp 90bp

10yr v US 130bp 110bp

3yr EFP 25bp 20bp

10yr EFP 50bp 40bp

iTraxx 115 105*Note: Strategy Team views. CBA Economics have also lowered their forecast to a 2.5% cash rate.

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Global Markets Research | Fixed Income: Weekly Strategy

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Key Trades

Bonds

Trade Entry Current Profit Target Stop Comment Buy the ACGB Aug-15i vs the Oct-15 Receive ZCS at 2.65%.

250bp (30-Mar-12)

Hold: The trade is now (close to) an 8bp per annum annuity.

Buy the QTC Feb-20 to the NSWTC Mar-19

36bp (13-Nov-12)

34bp 2bp+3.5bp carry = 3.5bp

10bp 50bp Hold: S&P should keep Qld at AA+/Stable, but NSW AAA/neg to remain under pressure

Buy the Jan-18 ACGB vs the Feb-17 12bp (21-Nov-12)

15bp -3bp+1.5bp carry = -1.5bp

0bp 20bp Hold: There is a clear kink in the curve and a promising carry profile.

Buy the NSWTC Feb-17 against the NSWTC May-20

48bp (12-Feb-13)

59bp 11bp-3bp carry = +8bp

60bp 42bp Take Profit: Close enough to target and bleeding away carry.

Buy the QTC Apr-16 against the ACGB Jun-16

54.5bp (4-Mar-13)

48bp +6.5bp +4.5bp carry = +11bp

30bp 65bp Hold: QTC Apr-16 looks cheap and the carry is attractive

Buy the TCV Nov-16 against NSWTC Apr-15

31.5bp (6-Mar-13)

28bp +3.5bp+2bp carry = +5.5bp

15bp 37bp Hold: TCV cheap in 2016 section, while NSWTC is dear. Prefer the mid curve.

Buy QTC Jul-23 on ASW basis 51bp (22-Apr-13)

45bp +6bp 25bp 42bp Hold: Positive credit & demand/supply dynamics should help narrow spreads. The stop has been pulled in & target lowered.

2013 to date +46.5bp (including +22bp from closed trades)

Swap

Trade Entry Current Profit Target Stop Comment

Short Feb-17, long Oct-14 ACGB on an ASW basis.

-29bp (30-Jan-13)

-30bp -1bp -10bp -35bp Exit: Switching to 3/10Y EFP box position (trade closed on 29-May-13)

2Y/4Y swap steepener 36bp (5-May-13)

43bp +7bp 45bp 30bp Hold: Combination of RBA cuts and US sell-off to steepen the curve.

3/10Y EFP box flattener 25bp (29-May-13)

25bp 0bp 10bp 33bp New Trade: Long spreads room to compress given bond supply, credit etc.

2013 to date 109.5bp (including +102.5bp from closed trades)

Credit

Trade Entry Current Profit Target Stop Comment

Buy WESAU 6.25% Mar-19 vs WOWAU 6.% Mar-19 on ASW basis

30.0 (30-Aug-12)

16.7 +13.3 10bp 25bp Hold: Coles should continue to outperform Woolworths. Stop tightened.

Buy RIO 3.75% Sep-21 (U$) vs BHP 3.5% Nov-21 (U$) on ASW basis

43.0 (13-Feb-13)

49.1 -6.1 20bp 55bp Hold: RIO US$ long-end is steep relative

BHP U$ curve

Buy EIB 6.00% Aug-20 (A$) vs EIB 6.25% Apr-15 (A$) on ASW basis

45.0 (15-Mar-13)

48.4 -3.4 25bp 60bp Hold: Initiated curve flattener

Buy IFC 5.75% Jun-14 (A$) on ASW 12.0 (4-Apr-13)

4.5 +7.5 5bp 15bp Book Profits

Buy WPLAU 8.75% Mar-19 (U$) on ASW v. 1.18x WPLAU 5yr CDS

62.0 (17-Apr-13)

47.4 +14.6 Hold: 2019 bonds offer value at current levels. Hedged via CDS (1.18x Notional)

Buy NAB 2.75% Mar-17 vs WSTP 2.00% Aug-17 on ASW

15.0 (13-May-13)

16.2 -1.2 5bp 25bp Hold: NAB U$ 2017 wide relative to WSTP U$ 2017

Buy TLS 4.80% Oct-21 on ASW 105.0 (17-May-13)

96.9 +8.6 90bp 115bp Hold: 2021 bonds offer value at current levels. Long position hedged via CDS (1.6x Notional)

Buy SGPAU 8.25% Nov-20 (A$) on ASW (s/s)

183.0 (24-May-13)

186.0 -3.0 170bp 195bp Hold: 2020 bonds offer value at current levels.

Buy WSTP 3.625% Feb 23C18 v WSTP 1.60% Jan 18 on ASW

125.0 (28-May-13)

128.1 -3.1 100bp 140bp Buy: Buy: Sub /Senior multiple to wide

2013 to date +127.4bp (including +108.0bp from closed trades)

Global Markets Research | Fixed Income: Weekly Strategy

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Short term interest rates

BBSW and OIS rates are still trading at the lows for the year. The market remains comfortable with the view that further easing is needed, despite the break higher in longer term yields. The Q1 capex survey didn’t provide the RBA with a “smoking gun” to cut rates, while a falling currency provides some cause for the RBA to watch and wait. We expect the RBA to stay on hold at tomorrow’s meeting, but look for the market to continue pricing further easing.

August looks most likely for another RBA cut. The market is fully priced for another cut by September and terminal rate pricing remains at 2.40%. However, the RBA’s willingness to move in May and their low inflation forecast means the door remains wide open for a cut at any stage. At the margin, a falling AUD puts less pressure on the RBA to ease, but isn’t a major game-changer just yet. The RBA would want to see if the move extends further and isn’t just a transitory positioning shift. Also, the TWI is still historically elevated.

The recent RBA cut was in line with the Strategy team’s core view that cash will get to at least 2.5%, but transpired a little earlier than expected. We see distinct downside risks to the economy, as domestic demand fails to fill the large gap left by the pending peak in mining capex. Low inflation, fiscal tightening, deleveraging, the high AUD and tight financial conditions all point to further easing.

BBSW remains relatively tight to OIS, despite some month-end widening. We think spreads will remain tight given limited issuance and ample liquidity.

Commonwealth bond curve

Our strategic view is that ACGB bond yields are bottoming. While domestic pressure to ease policy further will linger, bond yields are likely to move gradually higher as US bond yields rise.

The US sell-off has reflected Fed discussion of an early exit from QE. The end of QE isn’t necessarily imminent, but it is approaching. The Fed is likely to continue testing the waters as long as the data and markets remain firm. We see the US recovery as solid and look for yields to lift this year as investors respond to the Fed’s waning commitment to QE and move more decisively into risk assets. That points to a generally steeper AUS curve; we expect the mid-section (3-7Y) to underperform.

The 3/10Y curve is already at the top of its range. But we look for a steeper curve over time. If the US sell-off continues the slope could head towards 90bp.

Commonwealth bond spreads

The Aus-US 10Y spread is trading just above recent tights at 130bp. We expect the spread to ultimately tighten further, in line with our view for a US-led sell-off in long end bonds. We would use any significant widening of the Aus-US spreads to go long ACGB vs US 10Y.

The 2013-14 Budget confirmed continued supply of ACGBs. However, the Budget revenue and growth assumptions are not particularly conservative. ACGB yields will remain subject to shifting views on global growth and commodity prices. These factors, along with a tepid pickup in domestic non-mining activity, are likely to confirm the need for further RBA easing, which in turn will support tighter Aus-US yield spreads.

However, pressure on front end pricing may be slow to emerge

AUD money market

Source: Bloomberg, CBA

ACGB curve

Source: Bloomberg, CBA

AUS-US 10Y bond spread

Source: Bloomberg, CBA

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Global Markets Research | Fixed Income: Weekly Strategy

5

recede (as above) and thus view semis favourably.

Spreads have also begun to narrow to swap, but the back-end has wobbled into ‘Budget season’. We’re happy to hold our QTC 2016 trade to bond and the QTC 2023 ASW position on the view that semi spreads will tighten further as Budgets are delivered.

Mid-curve swaps are attractive and underpin solid semi appetite around 4-7Y, where curves are steep and well over 2.75% cash. However, the back-end is now looking cheap by comparison, even after the rally.

While revenue remains under pressure (and borrowing requirements will thus increase somewhat), existing estimates point to a $10bn fall in the new funding requirement in each of the next two years as states tighten up to protect their credit ratings. At the same time, we expect bank demand to remain firm despite lack of clear (public) guidance from APRA that banks should further improve the composition of their liquid assets. AUD related selling should ease up before long, allowing semis to move sub swap.

We see NSW as remaining under pressure from S&P, but believe QTC will hold firm at AA+. WATC has probably cheapened enough from prior premium levels. But TCV isn’t being adequately rewarded for its ‘safe-haven’ status, as confirmed in the Budget.

SSAs

The SSA A$ curves moved out between 3-8bp across the board in asset swap terms last week. New deals fatigue and offshore selling were partly offset by end-of-month buying. The long end under-performed the short end and remains at risk of a risk-off move globally. Issuers continued to access the A$ markets with IFC completing its first Kangaroo deal of the year. The back end of the curve continues to remain steep. Year to date issuance is A$10.03b (vs 2012 YTD A$10.93b).

The wide swap to bond spreads had taken short bonds above cash, opening up value for short tenors. We had bought the IFC 2014s to capture this. Over the last couple of weeks, the short-end has performed well and for almost all names is now trading at or below cash rates. We expect the short end to remain well bid as market technicals (maturity profile, offshore flows, global uncertainty and limited supply) should persist.

The long-end, in particular the European names, remains steep. Sovereign downgrade risk and the ongoing macro and political risks in Europe will be the main driver of sentiment & demand for long-end of European SSAs.

At current levels we see value in the long-end of the SSA A$ curves. We continue to hold an EIB A$ 2020-2015 curve flattener to take advantage of this steepness and on the view that the back-end will catch up when AUD flows stabilise. We believe global appetite for AUD fixed income will remain strong and the current steep SSA curve should start to flatten over the coming months.

Credit Markets

QE speculation and volatility in US Treasuries and Japanese equities have been the driver of sentiment recently, but cash spreads remain resilient. Cash credit did not move too much; financial curves moved out 2-4bp while non-financial curves held strong. Another eventful week to look forward to with key economic data hitting the wires with ISM kicking of the week and payrolls rounding up the week.

2022 semi-govt to bond spread

Semi to swap spread

Source: CBASpectrum

Select SSA A$ Curve

Source: Bloomberg

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QTC Semi (21-Jul-22)TCV Semi (17-Oct-22)WATC Semi (15-Jul-21)NSWTC Semi (01-Mar-22)

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QTC Semi (22-Jul-24)QTC Semi (21-Jul-23)SAFA Semi (20-May-21)QTC Semi (21-Feb-18)QTC Semi (21-Apr-16)NSWTC Semi (01-Mar-22)TCV Semi (15-Nov-18)NSWTC Semi (20-Feb-17)

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Global Markets Research | Fixed Income: Weekly Strategy

6

Local market activity remained healthy, with new issues continuing to trickle in and the market doing its best to digest the flow of recent issuance. Recent market activity mainly driven by kangaroo (SSA and FI) issuances has boosted year-to-date 2013 primary issuance to A$48.59b, 5% higher than last year. The iTraxx Australia ended the week 7bp wider from last week.

Economic data and news flow in the US remains encouraging but recent comments by the Fed have put the markets on edge. Europe continues to muddle along (if at all) with the OECD cutting its Eurozone growth forecast last week. Domestically economic data remained a mixed bag. April building approvals were better than expected and 1Q private capex was not as bad as expected but April private sector credit growth was still at multi-year lows. The lower cash rate adds to the attractiveness of the spread component in credit, providing strong underlying support for the sector. Along with global QE.

Limited supply, improving global sentiment, and the large near term maturity profile (~A$40b worth of bonds maturing by August-end) are very supportive of tighter cash spreads in the near term. Even after the recent CDS widening we expect cash to continue to outperform CDS in the near term.

Medium to longer term we remain optimistic and expect credit spreads – cash and CDS – to tighten given the supportive monetary policy globally and the relative health of corporate Australia. Central bank policies have successfully encouraged investors to take more risk and we expect them to hold that path at least till early 2014.

CDS Markets

The iTraxx Australia index widened 7bp last week underperforming other major CDS indices globally. But the index is still 45% tighter than its June 2012 levels. Since the start of 2013, the iTraxx Australia has performed very well relative to other major indices. However since mid-April the iTraxx Australia has underperformed the ITraxx Europe. The iTraxx Australia is currently trading 10bp wider than iTraxx Europe. iTraxx Europe ended the week above 100bp, first time since the start of May 2013.

QBE last week launched a tender offer for up to U$500m of its 2030 maturing senior convertible securities (SCS). The tender offer will be partly funded by the proceeds of last month’s U$600m senior debt placement. The tender offer is credit positive and show the confidence the company has not only in its ability to generate capital organically but also to access capital markets. QBE 5yr CDS widened by ~10bp after S&P’s one notch downgrade of the holding company. We expect QBE 5yr CDS to consolidate at current levels.

The iTraxx has moved above our year-end target of 105bp In line with our view expectations expressed over the last few weeks. While we are sellers of protection over the long term, we expect the markets to remain volatile in the medium term. The iTraxx Australia has given up most of YTD gains and we expect the index to remain volatile and should oscillate between 110bp and 120bp providing trading opportunities.

Financials

Relative to the moves in the CDS markets, cash markets were much more resilient. While A$ Financial curves moved out slightly, the short-end remains well supported mainly driven by limited supply, maturity profile and attractive yields compared to cash rate.

Moody’s has placed subordinated debt rating of 8 Australian banks

Select CDS Indices

Source: Bloomberg

2013 Maturity Profile (Corp+SSA+Semi+ACGS)

Source: Bloomberg

iTraxx Australia RV performance to Major Indices

Source: Bloomberg

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Global Markets Research | Fixed Income: Weekly Strategy

7

on review for downgrade. The rating review is not related to any fundamental credit quality deterioration of individual banks but on account of Moody’s methodology change and revised probability of sovereign support for individual banks. As we have previously noted Moody’s could potentially downgrade Australian banks’ old-style LT2 bonds issue rating by as much as 2 notches. At the worst-case if the issues are downgraded by 2 notches then the issue rating could fall to ‘A2’ (‘A’ S&P equivalent) which would still be one notch higher than S&P’s current issue rating of ‘A-’ for the old-style LT2 bonds issued by the 4 majors. As a consequence we expect little to no impact on spreads for the Australian issues.

Australian banks maintain their strong position relative to global peers. Wholesale funding cost pressures have eased notably and the banks continue to strengthen capital and liquidity positions. Asset quality in the banks’ domestic book continues to remain stable with NPLs at ~1.5% of total loans (well below the 1.9% post-GFC high). Although profitability and returns have remained strong thanks to lower funding costs, lower credit costs and cost controls, the banks face slight earnings headwind in a slow credit growth environment. The risk in the near term is growing competition especially on the back of slow credit growth.

The main concern for Australian banks is the liquidity ratio under Basel III. APRA has now confirmed it will not follow the Basel Committee by relaxing the Liquidity Coverage Ratio (LCR) implementation schedule. But is has adopted the bulk of the relaxed assumptions for cash inflows and outflows, pointing to a lower liquidity bill that we assess to be favourable for the banks.

Anaemic credit growth means Australian bank issuance should be limited to refinancing in 2013. The 4 Majors have consistently paid down debt and we do not expect this trend to change any time soon. Westpac in its earnings release noted that the bank had already completed ~55% of its term wholesale funding needs with ~42% of the new issuance in U$.

With that back drop, we expect domestic and international investor demand for 4M term paper to remain strong. At current levels we look to the short end (<2yr) of the 4M A$ curves for a yield pick up over cash rates. Relative to the seniors, we continue to prefer the callable pre-Basel III LT2 bonds as they offer great value.

Non-Financial Corporates

We expect supply of Australian corporate paper to be limited due to limited capex plans (outside mining). Australian corporates will continue to be opportunistic in tapping domestic debt markets especially when equity markets are buoyant. Over the last few years Australian corporates have done well to manage and repair balance sheets (read: A-REITS).

While it is tempting to consider higher yielding issuers in a spread tightening environment, and select names have performed well, we prefer to be positioned on an individual credit perspective. In select sectors we continue to expect best-in-class names to continue to outperform even though they trade at already tight spreads.

GPT Group (GPT) withdrew its ~A$3.0b bid to acquire Australand’s Investment property portfolio and Commercial and Industrial business. This is credit positive for GPT and its 5yr CDS reacted positively to the news tightening 3bps to ~114bp on a day. GPT remains focused and disciplined. While the Australand transaction would have sped up the reweighting of its portfolio, the company should be able to achieve its target portfolio allocation by growing organically. The company’s balance sheet also has enough

Select 5Yr Aus CDS - 3M Absolute Change

Source: Bloomberg

Select CDS and Bonds

Source: Bloomberg. Bonds – Spread to ASW

Corporate Spread to ASW

Source: CBA

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bps NAB 7.25% 18WSTP 6.00% 17ANZ 5y CDSiTraxx Eu Sn FinCDX America Sn Fin

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A- (5yrs) BBB (5yrs)

Global Markets Research | Fixed Income: Weekly Strategy

8

headroom to do any bolt on acquisition that might come its way.

Wesfarmers (WES) strategy day contained no surprises. The company remains committed to deliver long term returns by disciplined capital and portfolio management. Medium-term outlook for Wesfarmers remains robust for the two growth engines - Coles (43% of group EBIT) and Bunnings (25% of group EBIT). The company is allocating more capital to these assets in order to drive space growth and build on the respective brands’ recent momentum. We continue to prefer Wesfarmers relative to Woolworths as we expect Coles, the main driver of company EBIT, to outperform Woolworths Australia Food and Liquor.

Covered bonds

Covered bond spreads have narrowed by around 100bps since issuance in late 2011. That 4yr paper is currently trading at a 40% premium to senior unsecured notes. This premium has widened over the year and points to a cautious near-term outlook. At current levels we believe that covered bonds are trading at fair value relative to the seniors. Covered bonds are viewed as defensive in nature and therefore in a narrowing market we expect the covered bonds to underperform the seniors and vice-a-versa.

With year-to-date covered bond issuance of just ~A$9.5b, there is high possibility, barring a global liquidity crunch, that our earlier FY13 covered bond issuance forecast of A$35b will be not be reached. Although the 5 Australian banks have around A$94.0b of spare covered bond issuance capacity, the combination of limited wholesale funding requirement (limited to refinance needs) and the strength of other funding options such as RMBS has negatively impacted covered bond issuance volume. We have revised our FY13 covered bond issuance forecast down to A$15-20b.

RMBS/ABS

We expect RMBS issuance to be highly opportunistic and driven by prevailing market conditions. The four major banks (~80% of lending market) are well funded. However, for the smaller ADI’s, RMBS should remain a key source of funding and their share of total securitisation should remain high.

ABS/RMBS issue margins lagged the tightening seen in the broader credit market in 2012. But they narrowed markedly late in 2012 and early 2013. Prime RMBS transactions for 2-3 WAL have compressed by around 30bps compared to end of last year. We believe that the observed rally on issue spreads has reached a plateau and do not foresee any major contraction in the near term.

The arrears rate measured by various rating agencies shows a slight increase in Q1. We believe that natural disasters in Queensland and northern NSW, coupled with other seasonal factors may have contributed to the rise in arrears. We continue to believe that monetary easing should improve loan serviceability for 2013.

Aust banks A$ covered bonds vs senior debt

Source: CBASpectrum

Covered and Senior bonds

Source: Bloomberg, CBA

RMBS, ABS and CMBS Issue Margin (2-4yr)

Source: Bloomberg, CBA

30

60

90

120

150

180

210

Jul-11 Dec-11 Jun-12 Nov-12 May-13

bps WBC (18-Nov-16)

CBAC (25-Jan-17)

WBC (09-May-16)

WBCC (06-Feb-17)

WBC (20-Feb-17)

0

10

20

30

40

50

60

70

Aug-12 Nov-12 Feb-13 May-13

YTM

Sp

read

ove

r C

over

ed (b

ps)

WSTP 1.40% 2015 (U$)

WSTP 2.13% 2016 (€)

WSTP 5.75% 2017 (A$)

0

100

200

300

400

500

Jan-07 Aug-08 Mar-10 Oct-11 May-13

bps

CMBS

ABS

RMBS

Global Markets Research | Fixed Income: Weekly Strategy

9

iTraxx Australia: Key constituents and 3M snapshot

Source: Bloomberg, Prices as of 31 May 2013

5y CDS change over 3 months: 5y CDS performance over 3 months:

Issuer 3 month trend 31-May %: Absolute bps: Absolute %: Relative to A-iTrx bps: Relative to Index

(bps) (bps) + = CDS wider (- = CDS tighter) + = underperformed (- = outperformed)

A-iTraxx 111 -4.0% -4.6

ANZ 81 -18.2% -18.0 -14.2% -13.4

CBA 81 -18.2% -18.0 -14.2% -13.4

NAB 81 -18.2% -18.0 -14.2% -13.4

WBC 81 -18.2% -18.0 -14.2% -13.4

AMP 107 -8.2% -9.5 -4.2% -4.9

MBL 114 -21.4% -31.0 -17.4% -26.4

QBE 150 -30.2% -65.0 -26.2% -60.4

GPT 116 -1.4% -1.7 +2.6% +3.0

LLC 180 -23.4% -55.0 -19.4% -50.4

WFG 101 -11.8% -13.5 -7.9% -8.9

BHP 70 +2.9% +2.0 +6.9% +6.6

RIO 109 +16.4% +15.3 +20.4% +20.0

WPL 96 +2.1% +2.0 +6.1% +6.6

TLS 70 +2.2% +1.5 +6.2% +6.1

WES 68 +10.6% +6.5 +14.6% +11.1

WOW 66 +10.9% +6.5 +14.9% +11.1

CWN 144 -5.9% -9.0 -1.9% -4.4

TAH 160 -11.4% -20.5 -7.4% -15.9

AMC 95 +0.0% +0.0 +4.0% +4.6

CSR 91 -12.1% -12.5 -8.1% -7.9

AGL 85 +20.6% +14.5 +24.6% +19.1

QAN 178 -20.9% -47.0 -16.9% -42.4

Global Markets Research | Fixed Income: Weekly Strategy

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Key Forecasts

Cash rate 3-Jun Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14

US 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.50Australia 2.75 2.75 2.50 2.50 2.50 2.50 2.50 2.75New Zealand 2.50 2.50 2.50 2.50 2.75 3.00 3.00 3.25United Kingdom 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75Euro-zone 0.50 0.50 0.50 0.50 0.50 0.50 0.75 0.75Japan 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10Canada 1.00 1.00 1.00 1.00 1.00 1.00 1.25 1.50

2-yr bond yield 3-Jun Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14

US 0.30 0.25 0.30 0.50 0.60 0.70 0.80 0.90Australia 2.57 2.60 2.60 2.65 2.75 2.90 3.00 3.05New Zealand 2.79 2.50 2.60 2.90 3.30 3.50 3.70 3.90United Kingdom 0.37 0.30 0.30 0.35 0.40 0.60 0.90 1.20Germany 0.07 0.05 0.10 0.20 0.60 0.90 1.30 1.40Japan 0.14 0.10 0.15 0.20 0.20 0.25 0.25 0.35Canada 1.08 1.20 1.20 1.30 1.50 1.70 1.90 2.0010-yr bond yield 3-Jun Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14US 2.15 2.10 2.30 2.50 2.70 2.80 2.90 3.00Australia 3.43 3.40 3.50 3.60 3.70 3.80 3.90 4.00New Zealand 3.58 3.50 3.70 4.00 4.20 4.40 4.60 4.70United Kingdom 2.00 2.00 2.00 2.10 2.20 2.30 2.50 2.60Germany 1.51 1.50 1.60 1.70 1.90 2.00 2.10 2.20Japan 0.83 0.80 0.90 1.00 1.00 1.10 1.10 1.10Canada 2.06 2.10 2.30 2.40 2.50 2.70 2.90 3.20

Global Markets Research | Fixed Income: Weekly Strategy

11

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