Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Post-Fed Euphoria Fades

Friday, 6th May, 2022

Daily Flows

  • ADI rates movements were a little more subdued yesterday, at least relative to the market chaos seen earlier in the week.
  • Judo Bank continued to attract strong funding from 3 to 12 months, as they maintained the highest rates in the market at many levels.
  • However, some outstanding 3 and 12 month opportunities have become available today. An unrated ADI is today offering 1.40% for 3 months, with a BBB ADI showing 3.00% for a 12-month TD, the first 3.00% 1-year TD we have seen in this environment!
  • ANZ issued 3-year fixed (yield 4.053%) and floating (3mBBSW+77) bonds yesterday, as well as a 5-year FRN(+77), raising $4bn in total.

Market coming to terms with what is coming over the horizon

  • The euphoric response from markets on the back of a dovishly perceived Fed has quickly faded as the reality looming on the horizon hits home.
  • Equity and bond markets both reversed post-Fed rallies overnight with the US 10-year yield finally breaking back above 3% after 8 attempts over the past 12 trading sessions.
  • It is starting to dawn on markets that central banks are going to have to crimp demand in order to temper supply-side inflation.
  • This is likely to result in economic growth having to slow, stall, or even head into recession for a brief period.
  • While potentially extreme , this action will be required to balance supply and demand in such a way that inflation and inflation expectations normalise to a level central banks are comfortable with.

Lawrence Vosper, David Flanagan

Curve Team