ABE Weekly 04/11/2020

Market Update  

 

The big news this week was the RBA cutting the official cash rate by 15bps to 10bps. It was pretty much a given so didn’t really affect the markets too much. It also happened to be on the same day as the Melbourne Cup and ahead of the US election so was always going to play second fiddle to other news. The cut is significant in that it will help underpin the recovery and the property market which has been surprisingly resilient during the COVID crisis. 

 

We now pretty much have the lowest rates Australia has ever seen and almost have negative ratesThis is huge for those relying on interest income to live but there are alternatives and there is a solution, the problem is that these alternatives are not widely known. See the chart below, and this is missing yesterday’s cut. 

 

The Australian Bond Exchange has just this week launched an Enhanced Yield Note returning 7.5% with a 4-year maturity. The Issuer is Pallas Capital, a well-respected and experienced operator. The Note has passed all ABE’s admission and credit criteria. Considering the current rate environment, we expect the note will be very well supported by the market as it limited to only $100m. The only caveat is that it is only open to wholesale investors. That said there are still several non-wholesale investable opportunities on offer as per the table below. We encourage you to contact your advisor on the bond exchange directly for more information on Pallas and other bonds.  

 

As we write this the US voters are deciding who will lead the worlds superpower for the next 4 years. At this stage there is no clear winner and suspect based on previous experience we may not know the outcome for a few days yet. Either way it’s not clear how the markets will react based on who wins. The equity market rallied on the back of a possible Biden win but that was about it – certainly nothing like the last election. 

RBA Cash Rate