Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – ECB Joins The 50 Party

Friday, 22nd July, 2022

Daily Flows

  • Yesterday saw substantial flows into major bank FRNs all across the curve, as investors take advantage of generous returns.
  • A BBB bank continues to offer premium NCD rates of 4.10% for a year as investors search for yield in the current environment.
  • Investors also sought after a AA- name offering a 5 month NCD just shy of 3%.
  • Term Deposit rates are expected to remain steady, as the market has rallied on the open in reaction to Biden testing positive to Covid.

ECB Hikes by 50 Basis Points

  • Overnight the ECB hiked by 50bp, moving the cash rate from -0.50% to 0.00%.
  • Whilst the market expectation was for a 25 basis point hike, the ECB justified their decision by stressing that they can anchor inflation by coming out of the gates quicker.
  • Most significantly, the ECB has released a new tool called the Transmission Protection Instrument (TCI). The instrument is designed to smooth market operations, with the ECB stepping in to buy bonds when prices are deemed unstable.
  • 50 basis point hikes are now the new norm. Whilst it makes sense for central banks to take drastic actions when rates are at su ch low levels, it does place significant pressure on households around the world.
  • In an interesting release from Christopher Joye yesterday, it analysed the significant pressure placed on Australian households. Whilst the RBA talks of significant buffers, this may not be the reality.
  • Australian’s are starting to feel the pressure of increased mortgage rates and this will only increase going forward, with at least another percent of hikes to come.

Nicholas Allan

Curve Team