BofA with the note. This is a good demostration of why markets are currently pricing in a very steep Aussie the bond curve forecasting a boom when pretty much everywhere else is bear flattening into a bust. I don’t buy it for a number of reasons:
- Liquidity is usually symptom not cause in risk-free assets.
- The terms of trade are not as supportive as they appear given usual tramsission to real economy of stock market, tax cuts and wage rises are all broken or pressured.
- The RBA will “look through” flood and energy impacts.
- Bond supply is not an issue in and of itself. Why supply is rising is what matters. Fiscal repair is not underway yet but it will be post-election.
- There is a large element of lost RBA crediblity embedded in the curve. After the RBA was so piss weak in defending YCC one can hardly blame the market for no longer believing in its forward guidnace of keeping rates low.
- Be that as it may, rates will remain low as house prices break into a steeper the dive the moment the RBA tightens. OR, the global economy shunts into recession and commodities crash. Whichever comes first and either way the Aussie curve is dislocated.
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