Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – More Inflation Pain To Come

Wednesday, 15th June, 2022

Daily Flows

  • We saw incredible moves in term deposit and reference rates yesterday after the broader market volatility arising from hotter than expected U.S. CPI.
  • Unrated 3-month TD rates remained around 2.30%, while BBB+ levels reached as high as 4.15% for 13 months and 4.45% for 20 months.
  • ADI’s continued to offer generous flexibility above carded levels to meet rising competition and retain and gain funds.
  • There were particularly strong NCD flows across numerous ADI’s, but almost entirely into the 3-month tenor. +30 was available from BBB+ names, with the standard rate remaining at +25.
  • Bond yields spiked significantly, with levels moving more rapidly than equivalent TD’s and NCD’s. The Feb 2027 NAB fixed line surpassed a 5.00% yield, with several similar opportunities available.

RBA Ready To Do What’s Needed

  • Last night Governor Lowe was interviewed on the 7:30 program.
  • Lowe emphasised that inflation is much too high and could hit 7% by the end of the year.
  • Further, Lowe stated that the RBA is ready to do what’s needed to bring inflation back to the 2-3% bracket.
  • No clear indication was given as to how high interest rates will be required to go, but 2.50% was mentioned.
  • Central banks have been caught out with better than expected data, disrupted supply chains and a roaring economy.
  • Now playing catch up, central banks have been forced into hiking, fast.

Business Confidence & Conditions

  • NAB Business Confidence and Conditions fell yesterday.
  • Confidence retreated from 10 to 6, while conditions fell from 20 to 16.
  • While this seems a significant decrease, the read isn’t all doom and gloom.
  • This level is still elevated when compared to the trend and captures data from the change of government and first rate hike.
  • The next read will be highly insightful into the pain of further rate hikes.

Lawrence Vosper, Nicholas Allan

Curve Team