Daily Commentary BY THE CURVE TEAM –

Daily Flows and Insights – Employment Strong

17 December, 2021

Curve Flows

  • We continue to see substantial flows into AMP term deposits, as the floodgates remain open to financial institutions. There has been particularly strong activity around the 3 month term (0.85%).
  • Another domestic ADI (A-2/ BBB+) has joined the fray for TD money, suggesting there is still room for funding in the wholesale market.
  • Longer-dated bonds are still maintaining relative value, with flows yesterday into the BoQ May 2026 line at 2.22%.

Employment Numbers Strong

  • Employment numbers were extremely strong for November.
  • Unemployment sits at 4.6% while the participation rate is at 66.1%, which is close to the all time high of 66.3% recorded in March 2021.
  • This shows there was next to no lag in the labour market’s recovery following lockdowns.
  • It also means the possibility of wage pressures from a tight labour market may occur sooner than the RBA expected.

Reaction to Labour Market

  • Given the much stronger than expected employment numbers, market expectations adjusted.
  • It is far more plausible that the RBA ends QE in February rather than simply tapering.
  • As a result, yields for bonds jumped up to 5 points for 2-3 year terms.

BOE Lift Rates

  • The Bank of England lifted rates from 0.15% to 0.25%.
  • They were expected to raise rates in prior months but held off.
  • Headline inflation is 5.1% and core inflation 4% annually.

Josh Stewart

Associate - Money Markets