AUD: Significant bond index lengthening and SSA issuance cost – Deutsche Bank

Ken Crompton, Strategist at Deutsche Bank, estimates the 1 June AusBond Composite 0+Y index modified duration extension will be at least 0.165, the largest rebalancing related extension on record.

Key Quotes

“We think this will increase demand for long duration bonds into month end, but we also expect lengthening itself will attract increased issuance – further exacerbating the lengthening.

Semis and domestic borrowers have issued at a steady pace during 2016 to date but SSA issuance has been slow relative to historic averages. The low cross currency basis and flat curve have been significant factors behind this.

During May the 10Y cross currency basis has risen and the curve has steepened. 10Y issuance is now much more competitive to alternatives such as Yankee issuance for many borrowers.”