The RBA Monetary Policy Board, as expected, left the cash rate on hold at 4.35%. It determined that three rate hikes were sufficient to adopt a wait-and-see approach to inflation. My key takeaways were:
- The Board only discussed a hold or a hike, and there was no discussion of a cut; the decision was unanimous
- Many uncertainties remain, particularly the Middle East conflict and the price of fuel, which is a key inflation input
- There is evidence that the economy is slowing, and
- The Board is going to allow a long runway for inflation to come back within the 2-3% target range.
Kellie Wood, head of fixed income, Schroders said:
The Board is still talking tough, but the forecasts suggest it is increasingly confident policy is already restrictive enough to finish the job… One more hike remains a risk, but it is no longer our central case. We think the RBA is done. The message for markets is clear: rates may not go higher, but they are not coming down quickly either. This is the higher-for-longer phase – policy stays tight until domestic demand slows enough to drag inflation decisively back to target.
US Treasuries influence global rates, so demand global attention. A couple of interesting articles sparked my attention this week.
Paul Mielczarski from Brandywine Global says higher US Treasury yields are being driven by stronger than expected growth and not inflation fears and the US economy continues to surprise on the upside. He goes on to assess the neutral rate, another important marker.
Interestingly, the US stepped in to support the Japanese yen last week, not a sign of friendship but rather to support US Treasury yields, according to Daleep Singh from PGIM.
I enjoyed reading Mark Dowling’s contribution from RBC BlueRay Asset Management this week. As well as covering current events, including the yen intervention, Dowling gave some terrific insight into other central bank moves, AI bonds and sovereign exposure.
Insurers are substantial fixed income investors, so I find it interesting to learn about portfolio allocations. Matt Gaden from Janus Henderson, in the company’s 2026 Insurance Report, says that ‘Insurers remain disciplined in how they manage risk, but they’re increasingly looking for opportunities that can enhance diversification and improve portfolio outcomes without compromising resilience’. Sounds like a few investors I know.
Betashares has launched a new ETF that invests in three existing ETFs, designed to provide a diversified Australian exposure.
Finally, I’ve drafted an educational piece discussing the various yields quoted on fixed income securities. It’s important to understand them and make sure you’re using the right one to determine relative value.
In Australian corporate bond news this week:
- Credit Agricole has raised $850m in a dual-tranche five-year deal:
- $500m in a floating rate tranche priced at 125 basis points over 3-month BBSW
- $350m in a fixed rate tranche with a 5.808% coupon
- Dominion Investment Group has launched a 3.5 year floating rate note with price guidance of 320 basis points over 1 month BBSW
- Macquarie Bank has raised $1.5 billion in a five-year dual-tranche deal:
- $1.35 billion in a floating rate tranche priced at 71 basis points over 3-month BBSW
- $150m in a fixed rate tranche with a 5.252% coupon
- Westpac is taking indications of interest for a 10NC5 Tier 2 subordinated bond deal with a fixed-to-floating or floating rate coupon. Indicative pricing is 140 basis points over swap
Hope you’re having a great week!
