Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Employment Update as Rates Rise

Monday, 14th of March, 2022

Daily Flows

  • Market activity was exceptionally strong last week as funding pressures continue to increase across banks, resulting in growing demand for investment and rising rates.
  • Bendigo Bank raised $750m in a bond issuance on Friday, setting at +98, with the coupon on the fixed tranche at 3.00%. This was not well-timed for those invested in Auswide’s equivalent 3-year launch the previous day, which priced in at +90, leaving them underwater on a mark to market basis before the deal has even settled.
  • Westpac also issued a 3-year MTN on Thursday, raising $2.5b and setting at +69.
  • TD rates have risen significantly. Major banks are now offering greater than 1.00% for 1-year deposits with strong uplift along the curve. Macquarie Bank have increased their rates today, with 6-12 month levels now higher than almost anything in the market across all credit ratings. The unrated Judo Bank remain the highest carded 3-month rate at 0.80%.
  • Swaps increased dramatically last week, with 3mBBSW rising to 0.15% and 6mBBSW surpassing 0.50%; levels they have not reached since April 2020.
  • NCD outright levels have risen sharply off the back of the rise in BBSW swaps, with some issuers also increasing margins. Intesa Sanpaolo (A-2/BBB) are now offering an attractive 1.27% for 1-year funds, higher than all TD and NCD rates on offer. CIBC (A-1/A+) have increased margins on their 3 to 9 month offers, with rates now at 0.25, 0.69 and 0.90% respectively.

Rates on the Rise

  • The market isn’t waiting for the RBA as reference rates and credit margins drive up funding costs for the banks.
  • Major Banks scrambling to shore up funding is driving up BBSW while credit spreads for the rest of the ADI’s is adding to funding costs.
  • It is a cash of ‘When’ not ‘If’ we will see ADI’s lift variable mortgage rates to offset rising cost of funds.
  • Bank’s reported sharp falls in Net Interest Margins for the last half year and funding costs have ramped higher so far this year so pressure will continue to build.

Employment Update

  • Thursday will see the latest update for the employment market, the key driver of wage growth and in turn monetary policy.
  • Current expectation are that 40,000 new jobs should be enough to push the unemployment rate down to 4.1% despite an expected increase in the participation rate.

David Flanagan

Head of Money Markets