- Yesterday, offerings of 5.30% for 2-5 years in the BBB space attracted significant flow.
- It seems market participants are considering lock in yield for longer as we near the end of the rate hike cycle and a potential slow down in economic activity.
- NCD margins of +50 for 3 month remain in place. Due to rises in BBSW out right 3 month levels are now at 4.71%.
The Tide is Turning
- It has been a very interesting 24 hours of data to kick off the short week.
- Yesterday’s consumer sentiment survey saw the index remain in its slump.
- The survey periods straddled the RBA meeting with those surveys post hike coming in much lower than pre decision.
- Meanwhile the business survey is finally coming under pressure with confidence and conditions both falling heavily.
- Most notably was the fall in forward orders which slumped to -5.
- In their release of the business survey, NAB highlighted that “Historically there haver been very few periods of negative orders outside of downturns in the economy.
- Offshore and the focus was on the US CPI for May where we saw a large fall in the annual headline rate which dropped to 4%
- With a large increase from June last year to drop out of the calculation next month, it is conceivable that headline inflation in the US could be in the high 2% range and at worst a low 3% rate.
- It has seen the market increase its expectations of a pause from the Fed when the meet later this week.
- One thing that might weigh on the Fed’s mind is that core inflation remains stubbornly high and will take some time to follow the headline rate lower.