Credit updates:
The appetite for Australian corporate bonds improved over the week with new issues being well subscribed and a measure of the riskiness of Australian corporate bonds improving. (Itraxx Australia Index)
- Sydney Airport (SYD) released encouraging passenger data this week with June 2018 total passenger numbers up 1.8% from the prior corresponding period to 4.421m. The SYD Inflation linked bonds remain hard to source but we are warehousing some bonds for clients. Call for details.
- The US tech giants continue to lead global equities higher. (Amazon and Google at or near all-time highs), but the bond market is less excited with yields remaining below 3% in the key 10y part of the US curve.
Macro comment:
The following factors were impacting bond pricing this week:
- Benchmark US 10yr treasury yields are 8bp higher at 2.95% as the Governor of the US Federal Reserve signalled his commitment to continue raising cash rates in the near term.
- Factors keeping a lid on yields include oil prices, which are roughly 10% lower than a fortnight ago and the simmering global trade tensions which are regularly punctuated by Tweets from President Trump. President Trump also stated publicly that he is not too keen on higher interest rates.
- Australia short term funding pressures are finally easing somewhat. The question is whether the costs incurred by banks thus far are enough to warrant them raising mortgage rates. We suspect banks will raise rates independently of the RBA in the coming weeks which will also reduce the need for RBA to tighten official policy.
ABX Colour:
With the all-important quarterly Consumer Price Index out today, investors are worried that their cash will get eaten away by inflation. A perfect hedge to inflation on your capital is inflation linked bonds, where your capital grows with the rate of inflation. At maturity you are receiving a much higher principal payment than $100 per $100 face value.
As mentioned we have Sydney Airport inflation linked bonds for the prudent investor. Call through to your adviser to secure them now.
Focus on AUD:
All eyes will be on updates to the Consumer Price Index later today. The headline reading for Inflation is projected to increase to 2.2% from 1.9% per annum in the 1st quarter of 2018. The AUD may strengthen if data prints confirm this and may pressure the Reserve Bank to alter forward guidance for monetary policy. However, another below forecast reading will drag on the Aussie as the RBA will be encouraged to keep the cash rate at record lows for longer.
Call your ABX representative on +61 2 8076 9343 to discuss out how this will affect your investments.
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Investors are worried on the housing sector, with auction clearance rates on a downward trend.
Find out how to get the perfect inflation hedge here: ABX weekly 25/7/18
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