Daily Flows & Insights – Treasury Adopts Optimistic View of Inflation as Expectations Diverge

Daily Flows

  • An unrated ADI is looking for funds at the 6 month tenor today with a rate of 5.40% for councils willing to invest funds today.
  • An A2/BBB name was chasing funds at the 12 month mark yesterday, with investors capitalising on an attractive rate of 5.40%.
  • UBS continued to be an attractive name in the A1 FRN space yesterday with market participants picking up stock in the 2028 line at levels approaching +150.

Treasury Adopts Optimistic View of Inflation as Expectations Diverge

  • The federal budget, released last night, paints an optimistic picture of economic moves through to December with expectations of interest rate cuts for the new year.
  • Treasury sees inflation dropping into the Reserve Bank’s target range of 2-3% by Christmas, with rising household spending and wages growth outpacing price rises.
  • The justification for an expected inflation level a full 1% lower than the RBA’s forecast appears to rest on the one-off $300 relief payments to every Australian household and a million small businesses to assist with rising energy bills.
  • Economists are publicly sceptical about the disinflationary effects of this payment and today’s wages data, followed by tomorrow’s employment print, could send forecasts in even more divergent directions if there is any upside surprise.
  • Interest rate markets remain volatile albeit with a slight easing bias developing over the last week, but no full cuts or hikes are priced in for the rest of the year.
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Curve Team
Josiah Binet