The RBA Monetary Policy Board increased the cash rate by 25 basis points to 4.85% yesterday, as anticipated. Unlike the last hike a month ago, which was unanimous, the board voted 6-3 in favour, leading some commentators to think this may be the top of the cycle. Others are not convinced and await further inflation data.
We publish two interesting articles on the hike. I particularly liked Scott Haslem from LGT Wealth Management’s analysis. Haslem takes a deeper look at the critical factors and the bond market’s response and asks, ‘Where to from here?’
J.P. Morgan Private Bank’s Yuxuan Tang’s brief note is insightful and well worth a read.
US publicly held debt reached a milestone in the last week, hitting 100% of GDP, historically thought of as difficult to ever unwind. The last time the US hit the mark was in 1946 after World War 2. In dollar terms, the US$32.2 trillion debt is unfathomable. Meanwhile, the federal budget deficit is impossibly high and totaled nearly US$2 trillion, or 6.2% of GDP.
Still, US Treasuries are sought after in nervous markets. The US Treasury yield curve has moved lower as investors sought safety with concerns about AI valuations. In the chart below, the pale green dotted line represents a month ago, while the solid line is the current curve.
Public and private credit are converging. Companies are issuing in both markets. Russell Investments discusses both markets and distinguishes between investment-grade and sub-investment-grade private credit issuance.
Arcadian Asset Management takes a different tack, examining institutional portfolio allocation. It has an excellent table comparing characteristics of investment grade, high yield, broadly syndicated loans and private credit.
The highest yields we’ve had in fixed income for years present an opportunity, says John Stopford of Ninety One. For the first time in a while, he thinks owning bond duration looks compelling.
La Trobe Financial reached an important milestone this week, issuing a $1.5 billion RMBS up a whopping 50% from the planned $1 billion. International investors made up more than half those investing in the deal.
Hope you’re having a great week!
