Australian Bond Exchange

Australian Bond Exchange Weekly Newsletter 

29 April 2022

“Inflation is taxation without legislation.” 

  • Milton Friedman

ABEWeekly 29-04-22

Key Points 

  • Commentary from Westpac’s chief economist Bill Evans.
  • Increasing cash rate is not the end of the world.
  • The underlying company for one of our bonds, Pallas Capital, continues to show strong performance.

Bill Evans is one of Australia’s leading economists who advises the board of Westpac and has access to some of the best brains in the world. When he speaks, we should take notice. Some of his most recent comments included:

  • Increasing Inflation: The March quarter will mark the peak in quarterly underlying inflation.
  • Increasing Cash Rate: The move in May cash rate will be only 15 basis points to return to 25 basis points and resume the likelihood that future moves will be at, or in multiples, of 25 basis points.
  • RBA Flexible: The RBA has more flexibility than the other central banks. That means that it can take a more cautious approach by relying more on regular 25 basis points increments.
  • 2023 outlook: Expecting a further two moves of 25 basis points in February and May in 2023 for a terminal rate of 2% (currently the market expects 3% which is crazy!!)

 The main points – yes cash rates go up but it’s not the end of the world. We think it is good news as it shows that we are recovering from the extreme situation of the past couple of years. If investors stay in term deposits there is still the issue that the returns will stay well below the inflation rate – they need to take some risks to even stay in front of inflation!

This again highlights the value when we deliver reliable income streams yielding 4.5%-6% despite all the noise about raising inflation and interest rates.

And finally, the quarterly update from Pallas Capital detailing the progress of the 7.5% Senior Secured Pallas FM Trust 2024 bond can be found here. The total issue size has grown close to $100mio and they are currently invested in 23 different, 1st mortgage investments and you can find a detailed list in the attached report. We still have some flow in this great bond so let us know your interest.

Contact us if you have any questions or would like any assistance.

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