Fund Flows

• Market participants continue to take advantage of high rates in the 2-5 year tenors, with significant flows into these longer-dated instruments.
• Yesterday’s inflation print pushed swap rates higher across the curve, with borrowers needing to respond in kind to win funds.
• We saw early interest in Bendigo & Adelaide Bank’s new 10 year subordinated issue indicatively priced at +265.

RBA Rate Rise Increasingly Likely

• A hotter-than-expected QoQ inflation print yesterday, coming in with a 1.2% rise which beat both the RBA’s projection (0.9%) and market consensus (1.1%), continues to place upward pressure on interest rates. Annual inflation is now at 5.4%, which is lower than the June reading but still much higher than the RBA’s target range.
• With two RBA meetings remaining in 2023, a Melbourne Cup Day hike is looking increasingly likely with yesterday’s inflation print preparing a baptism of fire for Governor Michelle Bullock. She has publicly stated a willingness to clamp down on persistent inflation, with a 60% chance of a rates hike in November and a hike to 4.35% by the end of the year almost fully priced in by market participants.

Overnight Macro Moves

• Bond yields rose overnight with a rise of 13bps in US 10 year Treasuries to 4.95%. This trend was mirrored across global developed markets with UK & European 10 year yields 6-8bps higher and 10 year ACGBs are currently at 4.81%.
• Oil prices continued their recent volatility with a 2.1% rise in Brent overnight as market sentiment regarding the impact of Arab-Israeli conflict remains mixed.
• US dollar was up 0.2% with a decline of 0.7% for the Australian dollar.
• Equity markets were broadly down with the S&P 500 losing almost 1.50%.