ABEWeekly 21-01-2022

21 January 2022

“There are far better things ahead than any we leave behind.”

C. S. Lewis

Welcome to the first issue of our newsletter for 2022. We hope readers enjoyed a pleasant and relaxing summer break.

Economic and Bond Market Outlook

Economic conditions both locally and globally remain mixed, with further signs of inflationary problems in the United States and challenges to local and global supply chains and economic activity as a result of the effects of the Omicron COVID-19 variant.

Here in Australia, the latest employment statistics showed a strong surge in jobs growth in December, with Australian Bureau of Statistics data indicating that the unemployment rate fell from 4.6 to 4.2%, with 64,800 new jobs created.

As always with data from the recent past, however, current developments can overtake the numbers, and there have since been significant further disruptions to local economic activity as a result of substantially increased numbers of the Omicron variant.

Leading forecaster Deloitte Access Economics is however comparatively upbeat about the local outlook, stating on 17 January: “Australia is now much more match fit for fighting COVID – we’re well-vaccinated, we’ve got the hang of juggling lockdowns and other COVID challenges, and we’re cashed up with dollars left over from when the pandemic meant that money couldn’t be readily spent. That combination spells resilience and recovery.”

On the inflation front, Deloitte Access Economics also noted that prices have so far grown much faster than wages, and that unless wage gains accelerate significantly, inflation is likely to ease (notwithstanding the number of newspaper headlines it continues to generate).

All of this will be feeding into the thinking and decision-making of the Reserve Bank of Australia, which kicks off its cycle of public activity for 2022 with the announcement of its first monetary policy decision for the year on 1 February.

The likelihood is that the Bank will continue to maintain its accommodative and supportive monetary policy stance by leaving the cash rate at its existing ultra-low 10 basis points.

Looking forward, we continue to believe that interest rate increase cycles from 2022 – 2024 will be comparatively modest, that bond rates are unlikely to shift meaningfully for at least the next 12-18 months, and that benchmark 10-year bonds have already largely priced in previous investor concerns about inflation and potential future interest rate increases.

Current and Forthcoming Investment Opportunities

We are currently working on building a pipeline of new debt issues for 2022. We continue to apply our exacting standards and rigorous product approval process to provide opportunities to invest in quality, high-yielding corporate debt.

First cab off the rank will be an Australian dollar fixed coupon credit-linked note over Xerox Holdings Corporation, a 6.8 year note offering a 4.30 – 4.65% per annum fixed rate with coupons paid half-yearly.

This represents an opportunity to invest in debt linked to a Fortune 500 corporation which provides digital document products and services in more than 160 countries and to diversify with a bond not previously available in Australia. You can read the product documentation and register your interest here.

You can also still invest in the 7.5% fixed rate senior secured note issued by real estate financier Pallas Capital. Contact us to find out more.