It’s the Monday after the Aussie Federal Election. It was an election that has so far drawn a bang on 50:50 result.

As at Monday afternoon, we are still don’t know who the winner is. So how do you play that in the market. Well over the weekend, there were several newspaper stories suggesting Australia could lose its AAA rating.

That would of course be negative for bond prices.

So how did it play out Monday?

Unfortunately, it was a dreadfully boring day, with extremely tight ranges. It feels like no one wants to commit until we have a confirmed government. Fair enough…

Despite that, there was still an interesting ‘relative value’ trade. Have a look at the chart below. The ‘boxed’ areas show the US Tnote (on top) and the Aussie 10s (bottom).

10s10s post election

Over the course of the day, the Tnote was near enough to flat while the Aussie lost about 4 basis points.

If you were spreading, you could argue (ahead of time) that buying the curve (long 3s and short 10s) would be a good trade. On the day it would have made one basis point L .

A 10s:10s spread would have worked, as in long US and short Aussie. That however is about the same result as just getting short the Aussie 10s.

In that, you would still have a relative value trade but there was little point in getting long the US market. Maybe that is hindsight, maybe not.

Either way, despite being a slow trading day, it was still quite interesting to see that relative value played out. The 10s made a slow grind lower while the US sat still.

The simple trade would be an outright short. Sometimes, it’s better to be simple.