Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – RBA Hikes, Fed to Follow

Wednesday, 4th May, 2022

Daily Flows

  • We saw strong flows yesterday as rates continued on their upward trajectory ahead of the RBA meeting, with levels again accelerating today after the central bank’s 25bp hike announcement.
  • Activity occurred across the full range of ADI’s and credit ratings, with a number of opportunities available. Judo Bank attracted particularly strong TD funding, showing 1.30% and 2.15% for 3 and 6 months.
  • 3-month domestic BBB NCD’s traded strongly at +20.
  • Bonds continued to sell off, with the Oct 2026 BOQ fixed line reaching 4.53%, and FRN margins sitting above NCD equivalents across the curve.
  • Again, rates are expected to move significantly again today after yesterday’s RBA meeting.

RBA Hike

  • The RBA has stamped their authority on the market, hiking rates by 25 basis points, an amount that no one saw coming.
  • Most economists were predicting a 15 or 40 basis point hike, moving the cash rate from 0.10% to 0.25% and 0.40% respectively.
  • Lowe stated that the hike was “business as usual”, and that the the cash rate would eventually move to 2.50% by the end of next year. Lowe also suggested the cash rate could hit 1.75% by the end of the year.
  • Inflation forecasts have been revised by the RBA, now expecting headline inflation of around 6 per cent and underlying inflation of around 4.75 per cent.
  • Lowe further indicated that the RBA will not be inclined to deviate from 25 basis point hikes unless there was compelling evidence to do so.
  • Markets sold off strongly in response to the conference, with 1Yr swap moving out 25 basis points. This will provide generous returns to investors in the longer tenors today.

Fed to Hike

  • The Fed meets in the early hours of tomorrow and will see the cash rate hiked by 50 basis points.
  • Markets have still been trading with positive sentiment despite the impending hike. However, Powell has been very transparent with the hike, efficient markets have already priced this in.

Data Today

  • Retail sales and home loans for March are being released today.
  • The market is expecting a 0.5% MoM growth in retail sales, however, this is revised down from a prior read of 1.80%.
  • Consumer confidence data yesterday saw a significant decrease, falling from 96.5 to 90.7. Consumers are starting to feel the burden of increased pricing. Retail sales data will resonate this fall.
  • Home loan valuations are expected to fall -1.90%.

Lawrence Vosper, Nicholas Allan

Curve Team