Australian Bond Exchange

Australian Bond Exchange Weekly Update

Friday 8th March

Key points 

  • Australian GDP growth weakens
  • Corporate bond issuance remains high
  • China sets growth target of 5%
  • How will a Biden-Trump showdown impact bond markets

Global Cash Rates & Inflation 

Australian GDP Growth Weakens

On a monthly basis, the Australian economy grew by just 0.2% in the December quarter and 1.5% on an annual basis, down from 2.1% in the previous quarter.

The decline marks the weakest annual growth rate since the COVID-19 pandemic and is indicative that restrictive monetary policy is working to cool the economy and tame inflation.

The importation of goods including food, clothing, and electrical items also fell 5.4% in the December quarter, highlighting that consumers are continuing to tighten their purse strings.

Ultimately, this should contribute to falling inflation which is declining faster than the RBA had previously forecast.

While the growth rate is undeniably sluggish, the result is one of the best in the OECD, where many other developed countries including Japan and the United Kingdom have already slipped into a technical recession, defined as two consecutive quarters of negative growth.

With weaker economic growth likely to persist throughout much of 2024 however, we believe the environment is broadly constructive for corporate fixed-income, especially when considering the exuberance in equity markets.

Corporate Bond Issuance Remains High

There has been a flurry of activity within the Australian corporate fixed-income market with recent issues from Mizuho Bank, Brisbane Airport, Insurance Australia Group (IAG), Stockland, and Aurizon.

We’ve also seen large issues from banks including Macquarie Group and ANZ, with the former raising $4.95bn for a 1.25bn Tier 2 issue, and the latter securing $4.1 billion of bids for its own Tier 2 issue.

This upsurge in activity, coupled with robust demand, underscores the attractiveness of the corporate bond market which is currently offering some the best returns in years.

The Australian Bond Exchange has participated in many of these recent bank issues via our Singapore trading desk.

China Sets Growth Target of 5%

The Chinese Government at its National People’s Congress announced that it would aim for a 5% GDP target for 2024, while also promising to provide more economic support for its flailing economy.

The world’s second-largest economy is grappling with spiralling deflation, a crumbling real estate market, and climbing unemployment, especially for youths and young adults.

Premier Li Qiang also announced that defence spending is expected to rise by 7.2% and reaffirmed China’s commitment to “reunification” with Taiwan, underscoring yet another potential geo-political flashpoint which could further destabilise the geo-political balance.

How Will a Biden-Trump Showdown Impact Bond Markets?

With Super Tuesday’s result almost all but solidifying a Trump-Biden presidential rematch, it’s worth considering how fixed-income markets may react to the U.S. presidential election.

When Trump first took the Oval Office in 2016, yields on U.S. Treasury bonds skyrocketed, rising from 1.80%pa in November to just under 2.65%pa by mid-December.

While the global economy was facing a very different set of circumstances in 2016, a Trump presidency could see bond yields rise once again due to inflationary concerns stemming from lower state taxes and higher tariffs.

Final Thoughts

From China’s continued sabre-rattling to a U.S. presidential election, and ongoing conflicts in Ukraine and the Middle East, there are plenty of risks for investors to reckon with. On top of this, economies are beginning to slow materially and, in some cases, have already entered recession.

Given the uncertainty, we think this backdrop positions corporate fixed-income and other defensive asset classes well overall.

Week Ahead

  • NAB Business Confidence
  • UK unemployment and GDP data
  • U.S. inflation, PPIs and retail sales

*Data accurate as at 08.03.2024

Disclaimer: This document has been prepared by ABE Distribution Pty. Ltd ACN 673 177 912 Corporate Authorised Representative 1307088  (“ABE”) and is of a general nature only. It was prepared without considering your financial needs, circumstances and objectives. Before investing in a fixed-interest product with ABE, you should consider whether it is appropriate for your circumstances and review the relevant terms and conditions. This document contains links to other third-party websites, some of which require a subscription to read. Such links are for your convenience only, and ABE does not recommend or endorse these third-party sites.. No representation or warranty is made as to the accuracy, completeness or reliability of any estimates, opinions, conclusions, or other information contained in the content. The content may contain certain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors, many of which are beyond our control. To the maximum extent permitted by law ABE disclaims all liability and responsibility for any direct or indirect loss or damage that you may suffer as a result of relying on anything in this content. Past performance is not an indication of future performance