Will the RBA board cut the cash rate when it meets next, on 18th February? Economists at ANZ and CBA have stated they think it will, while Warren Hogan from EQ Economics and Judo Bank think they will not.
The quarterly CPI due to be released on 29th January could make all the difference. If the Board’s preferred trim-mean measure is back under 3%, within its target 2-3% range, then I think it’s likely they will cut. However, this will be difficult to achieve with a strong labor market and sound November retail sales.
Certainly, the case is building for a cut but with an election imminent, strong property prices (even though Sydney and Melbourne have retreated) and the Australian dollar in the low US60 cent range, there’s enough uncertainty for the Board to wait and see.
The 10-year government bond yield for Australia and the US has spiked and is definitely something to watch in coming months. The Australian 10-year was 4.695% (shown in blue below) and US 4.793% (in green) at close of business on 14 January 2025.
It’s been interesting to watch the US interest rate journey. Recent strong jobs data and concerns about inflation and government debt has some commentators expecting the US Fed will pause its rate-cutting cycle. The current Fed Funds Rate is 4.25% – 4.5%, very close to our current 4.35% cash rate.
T. Rowe Price outlines where it sees investment opportunities in 2025 in our lead article this week. They suggest diversifying into areas with valuation support and robust fundamentals. This article covers multiple sectors, including equities and fixed income.
It’s a new year, and while some things change, we can rely on Emma Lawson from Janus Henderson to keep us updated on the Australian fixed income market. This is an excellent article, Lawson considers the ‘Five Ds’ – decarbonization, deglobalization, debt, digitalization and demography.
Damien Buchet from Principal Finisterre takes a look at emerging market (EM) debt performance in 2024 and the outlook for the sector this year.
Finally, R.J Gallo of Federated Hermes says the direction of US government bond yields hinges on the uncertain economic impact of the Trump administration’s new policies.
New corporate bond issuance is off to a strong start:
- Westpac raised $2.5bn in a senior unsecured five-year deal. The floating rate tranche raised $2.15bn and was priced at 3-month BBSW + 84bps. The $350m fixed rate tranche was issued with a 4.95% coupon
- Toyota launched a five-year senior unsecured fixed and or floating rate bond with indicative pricing of 115bps over swap
- Vicinity launched a seven-year senior unsecured fixed rate bond with indicative pricing of 140bps over semi-quarterly swap
- ANZ raised $1.75bn in a 10NC5 (10 year, non call five) transaction, including a $1.25bn floating rate tranche with a coupon of 3-month BBSW + 152bps and a $500m fixed to floating rate tranche with a 5.545% coupon.
- French bank, Credit Agricole, raised $600m in a 10-year, non-call five-year transaction. There were two tranches, a fixed to floating, worth $250m at a 6.06% yield, and a $350m floating rate tranche with a coupon of 3-month BBSW + 205bps.
This week Vanguard released its December monthly ETF flows. It was a big year for fixed income with $4.4bn in ETF inflows. We are working on updating our ETF Finder and will let you know when it’s complete.
Have a good week!
