Forex Flash: Australian credit steepens – NAB

FXstreet.com (Barcelona) - Credit spreads continue to tighten and this week it was the Australian semi-government sector, which has played, some catch up with spread to benchmarks around 5-10bps tighter on the week. We had previously, favored the 3y-5y part of the semi-government curve and had expressed this via a QTC curve steepening trade and a long QTC February 18 vs. benchmark trade.

However, “given where spread levels are now trading we are moving our long semi-government preference out to the 10y part of the curve. This is a core macro view and we are aware that at times supply/demand dynamics may result in some widening in spreads but in this low yielding environment a bond, which is trading 100bps above benchmark certainly looks appealing.” notes the NAB Research Team.

Note that based on historical levels there is still a reasonable amount of out-performance to come – and this trade has positive carry and roll.