Australian Bond Exchange Weekly Update
Friday 25th August 2023
Key Points
- RBA releases CBDC report with input from the Australian Bond Exchange
- Future Fund doubles exposure to Australian corporate debt to $1 billion
- Treasury yields slide on weaker U.S. and European PMI data
Market Yield on U.S. Treasury Securities: 10-Year Constant Maturity
Source: Trading Economics
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate still sits at 4.1%pa with the RBA continuing to adopt a wait and see approach to receding inflation
- The UK cash rate sits at 5.25%pa, to fight an inflation rate of 6.8% in the year to July.
- The US cash rate (policy rate) is currently between 5.25-5.5%pa, and the annual inflation rate in the year to August is 3.2%, up 0.2% in July.
- The ECB Cash Rate (deposit facility) is 4.25%pa, to fight an annual inflation rate of 5.5% in the year to June.
The Future of Money: Findings of RBA’s CBDC Pilot Program Report Unveiled
The Reserve Bank of Australia (RBA), in collaboration with the Digital Finance Cooperative Research Centre (DFCRC), has released the report findings of its pilot program. The Australian Bond Exchange’s (ABE) participated in the pilot program.
The pilot program explored various use cases of a Central Bank Digital Currency (CBDC), which could enable substantially improve the efficiency of the corporate bond market by democratising access, reducing counterparty risk, and enabling automatic settlement of transactions.
In the pilot, ABE acted as a principal to sell bonds to. select participants who benefited from the quicker issuance of holding statements and faster settlement (T+0). ABE was just one of 15 use cases selected from 140 submissions, underscoring its unique and industry-leading position within the market.
Corporate Debt In Focus: Future Fund Expands Allocation as Paul Keating Calls For Increased Market Liquidity
In addition to Australia’s Future Fund “materially” broadening its exposure to investment-grade debt as interest rates move higher, former Treasurer Paul Keating has called for super funds to co-invest with banks in longer-term business loans, to boost Australia’s corporate debt market and provide greater fixed-income investment opportunities.
“If you’ve got the third-biggest super savings in the world and you don’t have a corporate bond market, you’re a duffer” – Paul Keating
Keating, who was the chief architect of Australia’s superannuation system, believes Australia is at an inflection point as millions of Baby Boomers enter retirement and start looking for reliable income. In his words “it’s going to require a higher proportion of fixed and variable rate instruments, not simply equities”.
The comments were made alongside Treasurer Jim Chalmers at the annual superannuation lending roundtable, who said he would be issuing a discussion paper in the coming weeks
Source: Australian Financial Review
European PMI Disappoints: Treasury Yields Reverse
All eyes will be on the Jackson Hole Symposium 2023 which commenced August 24th and runs until August 26th. The much-scrutinised event will see central bankers from around the world discuss the outlook for the global economy. Market participants will be listening intently to what is said.
Source: S&P Global PMI
Weaker PMI data was also seen in both the Eurozone and the U.K, revealing slowing in both goods-producing and services sectors.
Source: S&P Global PMI
What’s coming up?
- All eyes will be on the Jackson Hole Symposium 2023 which commenced August 24th and runs until August 26th. The much-scrutinised event will see central bankers from around the world converge to discuss the outlook for the global economy, and market participants of all persuasions will be listening acutely to what is said.
*Data accurate as at 24.08.2023
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