Credit updates:
- The Retail corporate bond market continues to perform strongly with steady customer buying seen across the unrated bond space out to 4yr maturity.
- Equities remain volatile but had a strong week, led by US stocks. It’s important to note that US equity strength is being led by technology companies. (Amazon hit a new record high overnight and is up 56% YTD)
- Centuria Capital Group (CNI) announced that it has ceased discussions with Property link group regarding a possible takeover or partnership.
- Dicker Data (DDR) was awarded the Australian distribution contract for printers from Japanese giant Kyocera. DDR stock price is up nearly 5% in the last week. Understandably the DDR Mar-2020 FRN yielding 5% has been popular with accounts this week.
Macro comment:
The following factors were impacting bond pricing this week:
- Benchmark US 10yr treasury yields are 1bp higher at 2.86% as strong equity markets are tempered by fears of reduced global trade and pockets of political uncertainty.
- In Australia short term funding pressures continue to be in focus with bank funding remaining more expensive than a month ago. As noted in our Interest rate update published last Friday, expectations of an official rise in the RBA cash rate have been dramatically reduced since January. This is bad news for term deposit rates and will push money into higher yielding corporate bonds with fixed coupon payments.
ABX Colour:
How to capitalise on subdued RBA interest rates?
With market expectations on interest to remain stable for the medium-long term, term deposit yields will remain stagnant. Having your investments in cash will get eaten away by inflation.
To combat low interest rate environments, invest in fixed rate bonds to lock in your returns. Corporate bonds yielding around 5%-5.5% will ensure a stable income for your investments.
Focus on AUD:
After the latest minutes from the Reserve Bank of Australia showing a leaning towards an upwards interest rate hike, but only if key economic indicators for the Australian economy continue to improve, also noting rising trade rising trade tensions are keeping the RBA in a dovish stance. Markets are still pricing in the odds of a rate hike not happening until far into the future.
The Aussie is currently back below 0.74 being dragged down after a bullish showing last night for the $US. The US Fed’s Jerome Powell struck a decidedly hawkish tone, talking up the US economy’s growth potential, while downplaying trade frictions with China. Powell will be undergoing day two of his Senate testimony, so traders will be tuned for any key hints dropped about the US Fed’s forward guidance.
Call your ABX representative on +61 2 8076 9343 to discuss out how this will affect your investments.
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