Australian Bond Exchange Weekly Newsletter
7 October 2022
Key Points
- RBA lifts cash rate target
- Ukraine/Russia war
- Bond market outlook
- Current investment opportunities
RBA Update
The RBA lifted the cash rate target by 25 basis points to 2.60 percent on Tuesday, for the sixth month in a row. The smaller than expected rate rise surprised economists who expected an increase of 0.5 percentage points.
“The Board is committed to returning inflation to the 2% to 3% range over time,” the RBA governor, Philip Lowe, said in a statement accompanying the decision. “Today’s increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead.”
Further, Lowe said he was mindful that interest rates had “increased substantially” in a short amount of time this year. However, he said, as is the case in most countries, inflation was still too high in Australia and more rate rises would be coming.
Australia’s big four banks have announced that the 25 basis points interest rate hike will be passed onto consumers this month. Westpac, the first of the big four announced that it will lift rates for home loan and savings customers from October 18. The Commonwealth Bank, National Australia Bank and the ANZ will also lift their rates by the same amount on October 14.
According to Rate City, the rate hike would see the average owner-occupier with a $500,000 loan and 25 years remaining see monthly mortgage repayments increase by $687.
Global
Russian President Vladimir Putin signed “treaties” folding four Ukrainian territories into Russia on September 30, some of which remains under Ukrainian control. Western leaders have denounced the move as an illegal sham.
The annexation (seizing another nation’s sovereign territory by force) comes after a lighting counter-offensive by Ukraine that seized as much territory in days as Russian had taken in months, including the key northern city of Kharkiv. Solders rounded up locals, often at gunpoint to vote in sham referendums for four territories (Luhansk, Donetsk, Kherson and Zaporizhzhia) to become part of Russia.
On Thursday, a Russian missile demolished an apartment block in the city of Zaporizhzhia, killing at least three people.
Bond Market Outlook
While the global markets grapple with recession concerns, higher interest rates have created a “far better environment” for fixed income investors, with “decent returns and little risk,” says Marilyn Watson, BlackRock’s head of global fundamental fixed income strategy.
The BlackRock executive notes that there is huge number of opportunities in the fixed income space that we haven’t seen in a long time.
Speaking about the interest rate hikes, Watson points out, “We’ve certainly seen interest rates much higher than this in the past and I certainly think we can live with interest rates being much higher.”
So, as fixed income yields become more attractive, long-term investors looking for opportunities in the bond markets will likely be considering adjustments to their portfolios, depending on their outlook and expectations.
Current Investment Opportunities
- Sydney Airport
- Marks & Spencer
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