Markets bet on little interest rate relief

At its last board meeting in December, the Reserve Bank of Australia put a new monetary policy alternative on the table for the first time this cycle: the option to pause its ultra-aggressive interest rate increases, which hadwith an unprecedented 300 basis points of borrowing rate rises in seven months.

In rationalising its decision to continue turning the screws on the Aussie economy, the RBA’s board interestingly “noted that no other central bank had yet paused”. That all changed on Thursday when Norway’s influential monetary policy authority, Norges Bank, became the first developed world central bank to halt raising rates since the globally synchronised tightening cycle began in late 2021, according to JP Morgan.

There have been some striking commonalities between the RBA and Norges Bank’s historical cycles, which is not that surprising given the cointegrated nature of the global growth and inflation pulses. Both central banks cut rates at about the same time in 2008, after hawkishly lifting them that year before it became clear that the global financial crisis would crush demand. They then stopped easing and began boosting rates again in 2009 at similar junctures.

Yet there are arguably even more attractive deals going around. For example, both NAB and Macquarie have had to pay very high interest rates on their Tier 2 bond issues in US dollars recently, which carry the same credit ratings as Bendigo’s senior-ranking debt securities. NAB’s Tier 2 bond offered 6.43 per cent annually, while Macquarie’s paid 6.80 per cent . Swapped back into Aussie dollars, these bonds delivered more than 7 per cent annually.

Hey AFR! you should stick to FR! not sure who would give a fu** about this

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Markets bet on little interest rate reliefOPINION: Investors believe the Reserve Bank of Australia’s cash rate will peak at 3.5 per cent, but are not pricing in much in the way of future cuts. The Reserve Bank of Australia has no idea what there doing they just keep raising interest rates instead putting them of hold there doing nothing but running the Country into a recession where a lot of people will lose their homes just come out of a pandemic they don't get it.
Source: FinancialReview - 🏆 2. / 90 Read more »

Investors risk making a classic portfolio mistakeIf you believe an ineffectual Fed will push up interest rates but fail to contain inflation, and that economic growth will slow, then 60:40 may be a volatile portfolio with weak returns.
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