In this edition of the Aussie Debrief, Rob Thompson, Macro Rates Strategist, RBC Capital Markets discusses his recently released semi-government bond outlook for 2021.
Key takeaways
Semi spreads are at historical tights, but risk/reward still favours staying mildly long versus bond or swap. Net supply is likely to be quite deeply negative through to at least the end of August after accounting for RBA and balance sheet purchases, and as the cyclical recovery out of C-19 continues to deliver upside revenue surprises.
Offshore demand also remains strong, and is allowing semis to extend their average duration and take further pressure off their benchmark programs.
We have shifted in preference to 10-14 year semis which look best in terms of spread curve steepness, taking over from 5-10yr which looked steepest through much of last year. TCorp and WATC are our favoured names, though we are willing to consider any issuer at the right price.
Full-year budgets in May/June may prove an opportune time to reassess these views, with good news likely to be more fully incorporated into budget numbers and therefore priced in by the market at this point. Attention will also be turning to the next phase of RBA QE.
This video is part of our regular economic series The Aussie Debrief, with ad hoc reports brought to you as current.
