RBA POURING FUEL ON THE PROPERTY BOOM
Director of Money Markets at Curve Securities Peter Sheahan said there is a glut of cheap near-term funding.
“A potential $145 billion to add to banks’ exchange settlement balances before 30 June just has to place downward pressure on mortgage rates,” Mr Sheahan said, “Especially if latent pipeline demand does not absorb it.”
RBA rate cut to ‘hurt recovery’, savers
Curve Securities’ Peter Sheahan said ‘‘the excessive 12 per cent growth in deposits during
October, totalling $16.5 billion, relative to a paltry 2 per cent growth in credit is a real challenge
to our financial industry. The positive funding paradigm has emerged as the clearest and present
danger of [banks] operating performance.’’
Banks cut deposit rates amid wave of cheap money
Our CEO, Andrew Murray, weighs in on the TFF, the RBA and the slide in deposit rates.
Andrew Murray, said the RBA’s move last week to expand its direct funding line for banks to a total of $200 billion was likely to ensure the trend of very low deposit rates continued.
Mr Murray said the slide in deposit rates was an unintended consequence of moves to lower bank funding costs, and the low rates were pushing more small investors into the sharemarket.
“They are playing with fire just a little bit, just to get a bit of extra return, and that’s what those low rates are forcing them to do,” Mr Murray said.
TFF finds little credit in business lending
“A very large $42.5 billion remains undrawn with 25 business days remaining” on the TFF, Peter Sheahan, Director Institutional Markets informed clients on Friday.
On 19 March, as part of a landmark package of RBA interventions in the capital market, the central bank set up a scheme designed in part to sustain credit flows to business as much as relieve the private debt capital market from their usual obligation to ensure banks are wisely funded.
Excess liquidity weighs on savings rates
Curve Securities CEOAndrew Murray says measures such as the Reserve Bank’s term funding facility, combined with strong growth in deposits, have created a high level of liquidity in the cash market and pushed cash market rates down to around 13 or 14 bps.
The low level of cash market rates and the bank bill swap rate are contributing to low borrowing costs for households and businesses, as intended by the Reserve Bank, and also lower deposit rates.
TFF misses business lending target
Peter Sheahan, director of institutional markets at Curve Securities, in a weekly appraisal on Friday of the latest RBA data on the Term Funding Facility points out that “a very modest $512 million was drawn this week and a total of $15.9 billion is now outstanding”.
This represents less than a fifth of the funding prop offered banks four months ago.
Retirees suffer as cashed-up banks cut term deposit rates
Curve CEO, Andrew Murray, weighs in on term deposits and bank funding. “There is so much cash sloshing around in banks’ deposit accounts that some of the smaller institutions have pretty much closed the door to new deposits.” Finding a rate above 1 per cent is “tricky” at the moment, he says. “They’re trying to slow down the inflow of deposits.”
Sub-RBA target cash rate inflicts further pain on savers
Peter Sheahan, Director Institutional Markets, said the banks are dealing with a “dilemma of excess quantity” with some lenders not willing to take on more deposits.
“The ADIs are full,” he said. “They are saying they don’t want to take any more deposits from institutional and middle market clients because it’s disrespectful to loyal retail customers who would then be required to roll at a lower rate”.
Mr Sheahan said the banks did need to “term out” the excessive at-call deposits from their retail clients to satisfy stable funding requirements.
Banks slash savings rates on back of RBA moves
CEO, Andrew Murray, said the fall in retail term deposit rates was a byproduct of stimulus measures taken by the Reserve Bank of Australia, and he predicted the trend had further to run.
These unconventional measures have shored up bank funding at a time of crisis, but also pumped cheap funds into the banking system at a time when credit growth is soft. As a result, Mr Murray said there was less need for banks to compete for deposits. “In a way it’s a bit of an unintended consequence of some of the government funding and stimulus measures,” Mr Murray said. “When the banks have got access to that extra cheap money from government stimulus, it means they don’t need to draw down on deposits.
The RBA’s Most Recent Updates
COVID 19 – The RBA’s Next Steps
Our Director Interest Rate Markets, David Flanagan, was on AusBiz this afternoon discussing the RBA, the outlook for monetary policy, how households might behave on the other side of the crisis and what it means for funding costs, credit growth and businesses.
Banks prepare to tap RBA’s cheap loan facility
The Reserve Bank is widely tipped to hold the official cash rate steady at 0.25 per cent at Tuesday’s board meeting, but anxious money market investors are hoarding funds, pushing short-term rates below the central bank’s policy setting.
Our Director Interest Rate Markets, David Flanagan, said “In uncertain times, treasurers will hold on to more cash to make sure they can cover any unexpected outflows. So they sit on more and naturally that is putting downward pressure on the cash rate.”
RBA injects $8.8 billion into ‘repo’ market
Foreign hedge funds dumped Australian government bonds and the Reserve Bank of Australia is pumping $8.8 billion into short-term bank funding – more than double the usual daily amount – to ease a serious breakdown in global credit markets.
Peter Sheahan, Director Institutional Markets, said there were important differences compared to the 2008 global financial crisis.
“There’s enough [money] to go around – it’s just a matter of whether people share,” he said.
UBank leads deposit reset
So far banks big and small have deferred pricing decisions on deposit products, with many changes likely to be communicated today.
Rate conscious savers are “going to have to get used to lower rates for an even longer period of time,” Andrew Murray, CEO of Curve Securities said.
For a typical client of Curve – such as local councils – “it’s a little bit difficult; budgets are not going to be met on interest income,” Murray said.
Peter Sheahan, Director Institutional Markets, said that a form of QE is already underway. He points to the level of Government deposits held by the RBA (the purple bar in the chart below). It has been falling rapidly as Government agencies appear to be circulating money back out to the financial system as soon as possible and not holding deposits with the RBA. The amount on deposit has fallen a further $23 billion from $41 billion to $18 billion since 30 June 2019. Some banks believe there is already more liquidity in the system than ever before and it’s one reason the RBA did not cut rates last week. It’s “cash flow optimisation to stimulate activity.”
Housing risks have ‘abated’ as prices bounce back, say top regulators
CEO, Andrew Murray, weighs in on the nation’s top regulators and how they appear to be breathing a sigh of relief, saying financial stability risks caused by falling house prices have “abated somewhat,” as values bounce back in Sydney and Melbourne.
In its latest quarterly update on systemic issues facing the financial system, the Council of Financial Regulators (COFR) on Monday toned down its concerns about the availability of credit, but still painted a picture of soft mortgage market.
RBA to trigger ‘unprecedented’ rush to zero rates for savers
Another cash rate cut could trigger a race to the bottom that will push banks into “uncharted territory” for rates on term deposits and savings accounts, which are rapidly sliding to zero, according to Peter Sheahan, Director Institutional Markets.
The big four banks’ savings rates have already been cut by around 30 basis points, which means there is not much room to move if there is another 25 basis rate cut on Tuesday with another in the pipeline.
‘Real’ returns for savers heading close to negative
Andrew Murray, CEO, thinks the situation facing people who rely on interest income is increasingly bleak: returns are worryingly close to negative in “real” or inflation-adjusted terms.
Even if you hunt around for the “specials” offered by major banks, latest Reserve Bank of Australia figures show the average return you will get is only a tad above 2 per cent, which is higher than the 1.3 per cent inflation rate – but only just.
Curve Securities Bolsters Financial Technology Solution with Skuid
Curve Securities has very much been shaped by the technological age and we are able to ‘elevate’ our clients’ performance by exploiting technology to provide an automated and streamlined process to secure these opportunities.
Banks slice term deposit rates as funding costs ease
Banks have sliced interest rates on term deposits as financial markets place growing bets on a cut in official interest rates, further squeezing the paltry returns available to savers.
CEO, Andrew Murray, said whole term deposit rates had also fallen over recent months, reflecting a decline in the benchmark bank bill swap rate, and softer demand for loan funding due to the weak housing market.
The impact of liquidity on asset prices
Director Institutional Markets, Peter Sheahan, weighs in on the Reserve Bank is using its daily money market dealings to control a system awash with liquidity. For the first time since 2013, cash has been lent interbank at a rate lower than the official cash rate. The 90-day bank bill rate has fallen from 2.1% in January to 1.69% now, and our Central Bank has withdrawn over $4 billion from the system in April so far.
Melbourne & Sydney house prices plunge further in January
Property prices in Sydney and Melbourne dropped sharply again in January as the decline in the once-booming housing market continues to gather pace.
Prices in the Melbourne market fell by a huge 1.6% in the first month of the year, eclipsing even Sydney’s 1.3% fall, researcher CoreLogic said on Friday in its regular monthly release.
RBA flags 3 risks to Aussie prosperity
Addressing the National Press Club, Reserve Bank of Australia (RBA) governor Philip Lowe warned of the three major risks to the country’s economic growth outlook. Our Director of interest rate markets, David Flanagan appeared on YourMoney to analyse the data presented and speak about the economic outlook.
Bank Funding & Rates
Director of Interest Rate Markets David Flanagan was on Your Money this afternoon discussing bank funding & the future of interest rates.
The Federal Reserve calls time on cheap money
Director of Interest Rate Markets David Flanagan was on Your Money this morning discussing the Fed, interest rates and the future of the Australian economy.
Current Market Trends
Our Director of Interest Rate Markets, David Flanagan on Sky News Business discussing the budget, ASIC, interest rates, funding pressures & the Fed on Sky News Business this afternoon.
The next stage in the mortgage refinance market
One key factor of profitable banking is to lend long and borrow short with adequate control of pricing margins. However, replenishing the supply of liabilities is a much more important element, says Peter Sheahan, Director Institutional Markets.
Government’s First Home Saver Scheme
Director of Interest Rate Markets David Flanagan was on Sunrise on channel 7 this morning. He joined Kochie to discuss the first home buyers super saver scheme, house prices, the RBA and mortgage rates.
Bank battle for savers to lift deposit and mortgage interest rates
Mortgage rate hikes are on the horizon – our CEO Andrew Murray sheds light on funding struggles.
“It’s a significant move up in rates that reflects some of the funding pressures that seem to be systemic at the moment.”
Can Australia’s property market survive a price fall?
Great to see Curve’s Director of Institutional Markets Peter Sheahan quoted in the AFR. There’s extraordinary developments taking place in funding markets and a loosening of the power the RBA has through monetary policy.
US wages, CPI and NAB Business survey
All eyes remain on bond markets as the monetary policy debate continues in both Australia and offshore. See what Director Interest Rate Markets, David Flanagan, had to say on Sky Business News about the outlook for monetary policy and the bond market ahead of the recent US CPI release as well as what the latest NAB Business Survey means for the local outlook.
The Reserve Bank may have kept official interest rates unchanged for the past year, but it’s a different story for people with savings in the bank.
Interest rates paid by banks on term deposits, a preferred way of saving for many, continue to fall to record lows.
Andrew Murray, Curve Securities CEO says there are anecdotal signs banks are not as hungry for term deposits as they were a few months ago.
For the big four banks, saver behaviour is the great unknown
Peter Sheahan of deposit specialists Curve Securities says he’s seeing plenty of evidence that the banks are doing what they can to manage the “funding gap” that isn’t getting any smaller.
“Some of the recent decisions by major banks have seen significant changes of direction,” he said.
Optus My Business Awards finalists revealed
Curve Securities was announced as a finalist for Finance Business of the Year, Workplace of the Year & Business Leader of the Year!
This year there were hundreds of submissions across 24 award categories, representing businesses right across Australia. Sadly though, not everyone can progress to the next stage, which makes the achievement of our finalists even more impressive.
The war for deposits is returning
Andrew Murray, Curve Securities CEO, says banks are competing more aggressively for longer-term deposits to satisfy looming regulations.
“There’s a battle for deposits, but it’s going to be a selective battle,” Murray says. “It’s all about funding stability, so the banks can prove, if we have another financial crisis, that they have long-term money.”
China’s economic growth rate could be headed to 6%
David Flanagan, director of interest rates at Curve Securities, told Business Insider that the big positive from the GDP data was “clear signs that the Chinese economy is making the transition away from its export-led growth strategy with services share of the economy growing”.
But he also said there is a strong chance that the Chinese economy continues to slow from here. Flanagan pointed out that the Chinese leading indicator of economic growth has continued to fall and is currently sitting at a level consistent with a 6% growth rate.
Here’s Why the Chinese slowdown has global central bankers so worried
David Flanagan, Director Interest Rate Markets, breaks down the relationship between German exports and the Chinese leading indicator of economic growth.
Banks tighten term deposit rules as capital changes loom
CEO Andrew Murray said banks were making changes in response to new rules designed to make sure banks have enough liquid assets to survive 30 days of financial turmoil.
Bond market bracing for a 1994-style crash
According to Curve Securities CEO, Andrew Murray, Aussie fund managers have been slow to move in the past as evidenced by the bond market crash of 1994.
“Here the rolling sell off (rise in yields) in bond markets over a number of months caught some fund managers by surprise. They held desperately onto their long positions in the hope the selloff would stop until it was too late,” he said.
A 1994-style bond sell-off: the other view
Andrew Murray, managing director of Curve Securities, agreed that in this situation, rising rates are not necessarily a big problem especially for portfolios with shorter durations.
Neither does he see the real threat to a US bond portfolio coming from the Fed lifting rates especially if it is successful at keeping the economy in check.
Where the real problem materializes is if inflation starts to build pace and the Fed (or in Australia, the central bank) is unable or unsuccessful at controlling it.
“In this situation you’ll see aggressive selling in the bond market lifting yields and, if you need to sell prior to maturity capital losses will mount significantly,” said Murray.
Bonded by a mutual goal
Peter Sheahan, from Curve Securities, said numerous legislative impediments had to be overcome to get to this point. ”We’ve sort of spent 12 years looking at the legislative and disclosure hurdles … and we had an antiquated settlement and transfer system in our past where the Reserve Bank only had one point of sale where one could buy and sell the [bonds].”
Banks ramp up reliance on offshore capital markets
Peter Sheahan of Curve Securities, a specialist term deposit broker says the golden age of juicy deposit rates is maturing. He says the banks are struggling to write enough new loans to make up for the prepayment of existing home loans as borrowers take advantage of low interest rates to pay down debt.
“The prepayment speed means the money is coming in faster and faster as rates fall so they can’t keep their asset book as high as they want to,” he said.
“No Aussie bank can push a button to advise all its customers of a reduced repayment plan when the interest rate they are paying is moderating or falling.”
Your clients’ biggest risk?
With the volume of cash sitting in super funds, the recent cash rate cut should seriously concern both members and advisers.
It seemed like everyone except George Soros was surprised when the Reserve Bank of Australia (RBA) dropped the cash rate to a record low of 2.75 per cent on May 7. The market had, nevertheless, priced in by almost 100 per cent the chance of a cut in June, so if the economy needed a cut then the sooner the better.
Term deposit guarantee clarified
Andrew Murray, a director of fixed-interest broker Curve Securities, said his advice was that such term deposits would be covered by the $1 million guarantee until February 1 and would then be covered by the $250,000 guarantee.
Murray said: “The Treasurer’s statement was unclear on that point. We had a few of our large clients calling us about it.”
Why is quantitative easing like antibiotics?
Peter Sheahan, Director Institutional Markets, weighs in on quantitative easing.
In the heyday of the baby boomers’ asset accumulation phase, they significantly benefitted from the two most important performance enhancing “peptides” at the time. Inflation and compounding were formidable catalysts on the velocity of dollar-value growth in an investment portfolio comprising high allocations of property and cash. Equity and purchasing power were being amassed at record pace.