Next week the RBA’s Monetary Policy Board meets to decide whether interest rates stay on hold at 4.35% or need to change. Higher than expected GDP up 2.1% for the June quarter, compared to the same period last year, adds conviction to a hike, as does the preferred trim mean inflation rate at a persistently high 3.6%, well above the target 2-3%.
In contrast, the Westpac-Melbourne Institute Consumer Sentiment Index was down 5.2% to 84.4 in August and, according to the NAB Business Survey, business confidence fell two points and is well below its long term average. These indicators, along with others may be enough for the Board to hold, but I’m in the ‘need to hike’ camp.
There’s plenty of uncertainty in markets, and VanEck’s Cameron McCormack outlined three possible outcomes of repricing interest rates and how investors should approach the market.
While private credit continues to come under the microscope, Shannon Ward from Capital Group explains why high yield credit quality has improved. One reason is that more highly leveraged borrowers have turned towards leveraged loans and private credit. This is a very good read.
Benoit Anne from MFS Investment Management says investment grade yield has historically tended to be a guide to future returns. He looks at median expected returns and ranges given current starting yields. Further, the spread widening needed for returns to turn negative.
There’s plenty of speculation about US interest rates and the need for them to rise, and Robert Sockin from PGIM gives us his views, including three 25-point hikes this year.
In other Australian corporate bond market news:
- Anglican Water Services has mandated an inaugural five-year fixed-rate bond
- Aurizon has launched a 10-year fixed rate bond with priced guidance of 185-195 basis points over semi quarterly swap
- Community Housing Funding Agency has launched a five-year social bond
- E.ON is taking expressions of interest for a six-year green fixed rate senior unsecured medium term note with priced guidance of 120 basis points over semi quarterly swap
- Mizuo Sydney Branch has raised $1 billion in a floating rate transferable certificate of deposit with a coupon of 63 basis points over 3-month BBSW
- Nationwide has launched a five-year floating and/or fixed-rate covered bond with price guidance of 65 basis points over swap
- The Lottery Corp has raised $800m in a dual tranche fixed rate deal:
- $400m over six years with a 6.326% issue yield
- $400m over 10 years with a 6.825% issue yield.
Hope you’re having a great week!
