Daily Flows & Commentary BY THE CURVE TEAM –

Daily Insights and Flows – Fed Will Raise When Needed

Wednesday, 12th January, 2022

Daily Flows

  • ADI activity continues to warm up into the new year. While some close their doors to funds, other unrated banks continue to seek funds, with one ADI potentially looking to attract significant funding over the next month. We expect to see a few more BBB-rated ADIs come to market for both TDs and NCDs this week.
  • The CBA 5-year bond issue proved very popular (the largest single tranche in Australian history), printing $3.1bn at +70 for the FRN and $900m at 2.40% for the fixed line. While the yield is slightly lower than some were hoping for, this issuance could set an interesting precedent for future major bank issues.

Fed Ready To Raise Rates When Necessary

  • Chairman Powell announced last night that the Fed is ready to raise rates in order to manage inflation. To quote Powell, “To get a long expansion we are going to need price stability. And so in a way, high inflation is a severe threat to the achievement of maximum employment.”
  • Powell also stated that they are ready to use their tools to get inflation back and that the Fed is ready to raise interest rates more over time.
  • It comes as prices rose 5.70% for the 12 months ending November, as measured by the personal consumption expenditures price index.
  • The supply and demand that has driven inflation is expected to alleviate and inflation believed to be persistent, rather than permanent.

Price Action

  • In response to Powell’s announcement:
    • 10 Yr Treasury yields are down 3 basis points
    • Equities rallied
    • U.S Dollar Weakened

Nicholas Allan

Associate - Money Markets