Daily Flows

• Yesterday, we saw activity in the floating-rate TCV 2027s, with volume still available alongside TCV 2028s.
• Banks seeking funds yesterday were quickly filled with large parcels. Most NCD investors are opting to extend duration, placing out to six months where an outright yield of 5.00% is achievable.
• With mid-month inflows dampening some demand, market participants have turned to foreign branch banks, where higher NCD margins are available.

Kent’s Speech Highlights Key Monetary Policy Dynamics

• Yesterday, domestic markets were quiet. Overseas, in the U.S., the housing sales outlook improved, and oil prices surged following Biden’s decision to allow Ukraine access to U.S. weapons and Trump’s appointment of an oil executive as Secretary of Energy.
• RBA speaker Kent provided valuable insights into the unique dynamics of Australian monetary policy compared to global counterparts.
• Specifically, Australia’s monetary policy diverges from other economies primarily due to the prominence of variable-rate debt in the financial system.
• Around 90% of business loans and most mortgage debt in Australia are variable-rate, whereas economies like the U.S. predominantly rely on fixed-rate, long-term debt.
• This makes Australian households and businesses highly sensitive to interest rate changes, as the impact of monetary policy is more immediately felt through cash flows.
• Forward guidance plays a smaller role in Australia, and household debt levels tend to be higher than in other advanced economies.
• While many other factors are at play, these dynamics create an environment where monetary policy in Australia is particularly effective in influencing borrower cash flows compared to other advanced economies.