ABE Weekly 31/03/2021

Market Update  

 

Life is really simple, but social media has made it complicated”. 

Seems things are picking up in the US. A testament to the pace of the US recovery, initial jobless claims fell sharply in the week ended March 20, breaking below 700k to be at their lowest level in the post-pandemic period. But the strength of recent data has prompted some Fed members, including Atlanta Fed president Bostic, to anticipate a fed funds rate hike in 2023. This may explain the volatility we have seen in the US bond market of late. The key takeaway from this is something we have mentioned several times – at some point all this debt must be repaid, the question is how and at what cost? Add the potential for rate increases on the back of rising inflation and tightening labour markets, we have all the ingredients for a perfect storm. Below is a chart of the dramatic rise in unemployment during COVID and the subsequent fall during the recovery.  

 

The RBA confirmed that it would take 3 measures into consideration when deciding QE policy. The effectiveness of the bond purchases, the decisions of other central banks and most importantly the outlook for inflation and the labour market. There is more room on the RBA’s balance sheet to accommodate further QE. 

The RBA clearly remains committed to the 3-year yield target of 10 basis points though yet are not able to decide whether to extend this operation by switching the policy’s target from the April to November 2024 bond. In this regard the RBA must also take into consideration international conditions particularly the policy stance of major central banks around the world. Despite record levels of stimulus in the US, the FOMC has made it clear that while prospects for recovery are strong, the FOMC will maintain accommodative monetary policy for the foreseeable future. The median fed funds rate expectation of the Committee for the end of 2023 remains the lower bound of 0.125%. 

We continue to see good activity in the high yield corporate bond space, with flow in NAOS 4.95% Fixed 2024’s, PEET 6.75% Fixed 2024’s, CENTURIA Fixed 5.00% Fixed 2024’s and our newly listed PALLAS CAPITAL 7.5% Fixed 2024 Bonds. The corporate bonds are yielding between 4-5% and PALLAS is a standout 7.26% Please contact your advisor or click on our website below: 

www.bondexchange.com.au 

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