ABE Weekly 07/04/2021

Market Update  

 

Business opportunities are like buses, there’s always another one coming”. Richard Branson 

The RBA met again on Apr 6 and decided to maintain the current policy settings of 10bp for the cash rate and the 3-year bond yield. The other point to note is that the RBA will continue with its bond purchase program. This is expected to follow the previous program of a $100b with an additional $100b. This mirrors the same style of policy as the Federal Reserve whose QE program amounts to approx. $120b per month. Most other central banks around the developed world follow a similar program designed to maintain a foot on the pedal when it comes to stimulating the economy. We have mentioned previously that we may be getting to the point where there is more of a placebo effect than actual impact, like trying to soak up more water when the sponge is full. At some point economies will have to run on their own steam……something we believe the market is very wary of.  

Risk assets are being watched closely by the market, which in turn shines the spotlight on the stability and security of fixed income, and in particular the higher yielding corporate bond space. ABE continue to be active in a range of higher yielding corporate bonds which are currently yielding somewhere between 4-5%, certainly a more attractive rate than other interest-bearing alternatives. 

In terms of the longer part of the yield curve we can already start to see the market starting to anticipate higher interest rates in the future. The 10-year Australian Government Bond is currently yielding approx. 1.76% after hitting a low of 0.8% post the pandemic, effective 100% improvement. 

COVID is all but a distant memory. Aside from intermittent lockdowns around the world, following small flare ups, people are feeling a lot more confident the virus is finally under control, especially after the rollout of the vaccine. This has gone a long way to improving consumer sentiment and subsequently a better economic outlook. 

That’s a wrap for this week’s newsletter, wishing everyone a prosperous week and watch this space for our next release. 

The Australian Bond Exchange Team.