Happy new financial year. Last year was a roller coaster. So much uncertainty and volatility, plenty of opportunity for traders, but I’m hoping this year will be calmer.
The monthly CPI was released last week, showing annual trimmed mean of 2.4% in May, down from 2.8% in April. It is well within the RBA Board’s target 2-3% range and general consensus is for a cash rate cut next week, taking the cash rate down to 3.60%.
But how low will interest rates go? Also, what’s the neutral rate?
The immediate future looks more certain with many economists calling for 0.75% to 1% cuts. That would take the cash rate down to 2.85% to 3.1%.
Longer term, I’m questioning growth forecasts and thinking rates are more likely headed even lower, towards 2%.
In the US, Goldman Sachs sees three rate cuts in 2025. This contrasts with markets, pricing two cuts this year. Interestingly, the US dollar has posted its sharpest decline since 1973, falling 10.8% in 1H25.
Despite uncertain conditions, there was some corporate bond activity this week:
- John Deere raised $300m in a fixed rate, five-year, senior unsecured bond issue with a 4.45% coupon.
- Port of Newcastle mandated an eight or 10-year senior secured deal
- Rabobank is taking indications of interest for a five-year senior unsecured bond with price guidance of 93bps over swap.
Our lead article this week is from Janus Henderson’s Emma Lawson who provides a detailed report on what was inflationary in May’s CPI as well as her team’s expectations for rates. Interestingly, they are concerned about the possibility of rising inflation. Lawson’s excellent summary is a must-read.
Private credit momentum is growing, and PIMCO gives its take on standout sub-sectors.
Global giant, Capital Group provides a fixed income midyear update, highlighting opportunities in duration, credit, and emerging markets.
Greg Peters from PGIM assesses opportunities across the yield curve and thinks fixed income offers stability for uncertain conditions. I totally agree!
Australian institutional investors will be interested in a new global EM market report, analysing over a decade of manager performance and allocation trends from bfinance.
Have a great week!
