(Bloomberg 2023)

Daily Flows

• Suncorp’s bond issuance on Wednesday has seen significant secondary market trading.
• Today, there is opportunity to pick up the A+ rated 3 year floating bond with an attractive trading margin.
• TD demand for funds is picking up in the BBB/BBB+ space. Levels of 5.00% for 6 months and 4.90% for 1 year are being snapped up by market participants.
• The NCD market continues to have a bid tone, with +45 being offered for 3 months as well as an introductory special of +50 for 2/3 months.

The Bank of England Joins The Rate Hike Chorus

• We saw another central bank rate hike for May last night with the Bank of England hiking by 25bp, taking their overnight rate to 4.50%
• They also upgraded the growth outlook from a recession to 0.25% this year.
• Despite the bleak outlook on growth, the unemployment rate is near a record low of 3.8%, slightly above the current rate of unemployment here in Australia.
• The major difference for the BoE is that wages are growing at 6.6%, almost double the rate in Australia making the central banks challenge even greater.

Market Expectations For Tightening Fading

• Following the Bank of England’s rate hike overnight, the market no longer has any further rate hikes fully priced for the next run of central bank meetings.
• That list included the US Fed, Bank of Canada, Reserve Bank of New Zealand, European Central Bank, Bank of England and of course the RBA.
• Of that list, the market has the US Fed, Bank of Canada and the RBA all in a holding pattern with rate cuts on the horizon.
• Meanwhile market expectations are that we will see a little more from the Bank of England, European Central Bank and Reserve Bank of New Zealand before they too enter a holding pattern.
• Of course, market pricing isn’t always right and if inflation remains elevated then this outlook could quickly change.
• For now, though, it appears as if we are entering a new phase for monetary policy globally.