ABE Weekly 16/12/2020

Market Update  

 

Life isn’t about finding yourself; it’s about creating yourself 

 

As we sign of for the year in what has been one of the most tumultuous periods in the last 100 years, the one common denominator across all the developed countries is the obsession by central banks to keep printing money. As we go to print The Financial Standard reported that the US Fed Reserve will continue with its program of QE until “substantial” economic gains are seen. At the same time given this scenario, the Fed has indirectly sold a free put to financial markets around the world and as such put a floor on equity markets which continue to strengthen despite an a very uncertain future. 

 

On the home front The Reserve Bank has kept interest rates on hold at 0.1 per cent, supported the size of its $100 billion quantitative easing program and suggested the economy is now recovering much faster than expected. Governor Philip Lowe said in a statement “the economic recovery is under way” and “recent data has generally been better than expected”. “This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support,” he said. 

Australia has finally joined the world of negative interest rates with investors buying $550 million of federal government debt at minus 0.01 per cent. The Australian Office of Financial Management (AOFM), which oversees the federal government’s debt sales, confirmed on Thursday the move into negative rate territory. The point being that interest rates are heading to zero and, with inflation at 150bps, investors are going backwards faster than ever. Therefore, we continue to strongly support alternative fixed income investments such as senior secured private debt. At 7.5% over 4 years, the Pallas bond is certainly a much better proposition than term deposits. 

We recently closed the Pallas Capital Bond issue which ABE acting as lead manager. It went much better than expected with a considerable proportion of the first A$30m tranche filled. It is now listed on our IRESS platform creating the first secondary market of its kind for private debt. 

For any more information on any of the above points please send us an email on support@bondexchange.com.au