Yesterday, the RBA Monetary Policy Board decided a third consecutive hike was needed to dampen inflation. The cash rate increased by 25 basis points to 4.35%, back to our recent previous high. It feels a bit like déjà vu, the last time we were at 4.35%, developed market central banks were substantially higher. This time they are all lower. We didn’t fight hard enough last time around and we’re likely going to pay for it now by having to suffer higher rates for longer. Great for income investors, of course!
Worryingly, the Board commented ‘inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations’.
Markets are signaling that there may still be another hike or two in the pipeline. The Australian government bond yield curve has been flattening. There’s just 30 basis points difference between the 2-year at 4.68% and the 10-year at 4.98%.
In the US, 30-year Treasury yields reached 5.03%, the highest since July 2025, given rising oil prices and higher borrowing forecasts of US$189 billion for 2Q, up from US$109 billion.
Our lead article is from Yuxuan Tang and John Li from J.P. Morgan, in context of yesterday’s hike, consider there’s value in bonds no matter which way you look at it.
Emma Lawson from Janus Henderson is back with her popular monthly Australian market commentary. Lawson foresaw the rate hike and provides evidence that much higher prices are not yet evident in inflation figures.
Bonds can still be attractive in inflationary markets, says Philip Brown at FIIG Securities.
State Street has published its 2Q outlook. We republish its fixed income commentary. I really liked the way they weighed up how bonds might perform under different scenarios.
Betashares has launched another defined income bond ETF.
Finally, a refreshing take on the AI supercycle from Laura Cooper of Nuveen who discusses how it is impacting a range of markets and industries and why you may choose to invest in multiple ways.
Here’s the latest on domestic corporate bond issuance:
- ANZ has raised $5 billion in a triple tranche deal
- $2.5 billion three-year floating rate note tranche paying 61 basis points over 3-month BBSW
- $2.2 billion five-year floating rate note tranche paying 71 basis points over 3-month BBSW
- $300m fixed rate tranche with a coupon of 5.4%
- Investa Commercial Property Fund (ICPF) has raised $250m in a senior unsecured fixed rate green bond with a coupon of 6.573%
- Liberty Financial has mandated a five-year senior unsecured floating rate note
- NAB has launched a senior and subordinated deal:
- A five-year senior unsecured floating rate note with price guidance of 79 basis points over semi quarterly swap
- A 15-year, non-call 10 subordinated fixed to floating deal with price guidance of 180 basis points over semi quarterly swap
- Titles Queensland has mandated a six and or 10-year senior secured fixed rate bond.
Have a great week.
