Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – RBA Tomorrow, Consumer Spending Up

Monday, 4th July, 2022

Daily Flows

  • We saw a mixed week of activity last week to close out the financial year. TD rates and NCD margins were largely elevated despite falling benchmark rates as ADI’s scrambled to secure funding to square up their EOFY positions.
  • TD levels held above 4.00% for 12-month BBB+ funds throughout the week. Closer on the curve unrated names gained some traction around 2.50% for 3-month deposits.
  • Macquarie Group launched a new capital notes program on Tuesday, expected to price with a margin of 3.70-3.90% above 3mBBSW.
  • NCD margins reached as high as +50 for 3 months on Thursday, demonstrating the desperation of some ADI’s to fulfil their funding requirements.
  • Judo Bank (A-3/BBB-) are currently a standout across the curve, offering 2.60% for 3 months and 4.17% for 1 year as they continue to experience strong lending growth.
  • Despite the elevated rates on offer investor funds were still somewhat elusive, highlighting the persistent negative funding gap we are seeing.
  • Activity was very quiet on Friday as everyone settled into the new financial year. However, numerous ADI’s remain on the hunt for funding, with several opportunities expected to present themselves this week.

Eyes Turn To The RBA

  • The RBA meet tomorrow and will decide the monetary policy setting.
  • Markets are pricing a 40 basis point hike, yet the majority of economists are calling 50 basis points.
  • Lowe has dismissed a 75 basis point hike, despite there being some calls to follow the U.S. with a similar hike.

Consumer Spending Accelerates

  • The latest ANZ data has shown consumer spending has increased.
  • Entertainment saw a huge increase, up over 14% MoM.
  • Shopping, travel and health and fitness all saw a large increase, outperforming June 2020 and ’21 by a large margin.
  • The data indicates consumer psychology after 2 years of Covid, prioritising socialising, travel and maintaining health regimes catalysed by lockdowns.
  • With the RBA’s mindset shifting to a decrease in demand, increased spending data will be looked upon unfavourably.
  • Increased demand for goods and services will mount pressure on supply chains and create further inflationary pressures.
  • However, with mortgage repayments increasing rapidly, consumers may be forced to reign in their spending.

Lawrence Vosper, Nicholas Allan

Curve Team