Daily Flows

• With the Easter long week now behind us and uncertainty abating as the Silicon Valley Bank collapse becomes a distant memory, the balance between supply and demand is normalising.
• While there is still a bid tone for new funding from ADI’s, we are seeing pricing pressures ease a little as flows pick up.
• In time this could see margins ease a touch. However outright rates are remaining higher as reference rates continue to creep up, especially in the long end.
• For example the 5 year swap is now over 25bp higher than the low hit earlier this month with the 1 year almost 20bp higher over the same period.
• Some increasing steepness in the curve will bring greater returns for those looking to lock in longer dated investments.

Focus to Turn to Central Banks are Contagion Fears ease

• The light data calendar to start the week saw markets left to their own devices with little to trade off.
• As a result we continue to see the fear and panic from earlier in the month unwind as contagion from bank failures in the US ease.
• That has seen interest rates drifting higher with easing concerns over the medium term outlook abate.
• What that now means is that upcoming central bank action in the weeks ahead will drive expectations for the back half of the year.
• As we head into a run of central bank meetings the end of the tightening cycle for many appears to be near.
• There is no longer a hike fully priced in for the US or Canada with the former still likely to have 1 more left while the latter is likely done for now.
• In Europe, where central banks were already coming from a lower starting point, we could see a little more action with the ECB still a ways behind the curve while the UK is somewhere in between with probably a couple left.
• Closer to home, the RBNZ looks to have one more before they take a break while for the RBA, the market has priced out any further move with only a 10-20% chance we see another rate hike from here.
• If we are indeed at the turning point of the cycle, then the rush to lock in rates while they are still somewhat elevated will quickly ensue.