AUD: A 30Y ACGB would not impact the swap curve much – Deutsche Bank

By FXStreet Ken Crompton, Strategist at Deutsche Bank, notes that on 29 April Fairfax media reported comments from the Prime Minister that 30Y bonds could be used for infrastructure funding.

Key Quotes

“Since 2011 the ACGB yield curve has been extended to fifteen and then twenty years (the current longest bond is 23 years).

There was evidence that extending bond curve was contributing to steepening of the ultra long swap curve from late 2011 to late 2015, but during the first half of 2016 the market has become comfortable with deeply negative long end swap spreads, and the bond and swap curves have become more independent.

Based on current market levels we think a 30Y ACGB would price at approximately 20bp over the existing ACGB Apr-39, which would imply a swap spread of around -45bp. We don’t think, however, that this would result in a substantially steeper 20Y/30Y swap curve. Although the drivers of swap spreads in the US can be different, we do note that even at -45bp the swap spread would still be comparable to similar maturity Treasuries.”
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Source:: FX Street