Australian Bond Exchange

ABE Weekly 30/09/2020

“When in doubt do nothing” 

Market Update  

So here we go again, another week rolls by and Christmas decorations are already going up and its only September. On the home front, it’s all about the next RBA meeting and the budget both of which are on the 6th of October. You can boil down the likely comments of both to either a rate cut or talk of one and how the Government is going to stimulate its way out of the post-pandemic malady respectively. In terms of rate cut the talk is 15bps which would leave the official rate at 10bps, in terms of marginal returns this is hardly going to make a difference but does highlight the attractiveness of the corporate bond space with yields of up to 5% (NAOS 4.95% Fixed cps 2024 is currently yielding 4.7%)  As far as the budget’s concerned I don’t think there’ll be any huge surprises, it’s going to be all about blowing up the balloon – more stimulus by way of QE, tax cuts and the like.

Elsewhere in the world, we’re getting to the business end of the US presidential election which is on the 3rd of November. At this stage, based on the below chart Biden certainly seems to be in the lead. It seems that the lead is largely based on Bidens proposed changes to social security. Biden would increase the special minimum benefit, which was created to provide low earners with adequate support. Biden calls for setting that figure at 125% of the federal poverty line. That would bring it to US$1,301 from US$886 a month as of 2019 according to an analysis by the Penn Wharton Budget. Aside from that he plans to increase taxes on high income earners.

One way or the other it’s going to be a potentially wild ride in the next month or so, particularly for risk assets such as equities. Not to talk our own book but we have been seeing a significant increase in investors seeking income and stability, particularly in view of the substandard term deposit rates. Our view on asset allocation remains the same – increase fixed income exposure.

Polls: Trump vs Biden