May 27, 2023
Welcome to this weeks edition of the lenders digest, by Jonathan Preston
Lowe speaks and Bond Yields jumped.
This week saw saw bond yields surge in the US, despite the talk that the US federal reserve may pause their interest rate hikes
US CDS pricing, which is an indicator of default risk, surged over the last few weeks as debt ceiling talks continue.
In the post- silicon valley bank collapse, the federal reserves emergency lending window has opened up approximately another 300 billion for the banks
In the Australian lending landscape this week
The talk this week is around more lenders joining the space of
matching loan assessment rates with long fixed terms, where we can
drop the assessment rate buffer altogether. This will potentially
help with some refinances. I did also review the new 1% buffer
policy from the Westpac group and there are quite a few rules
around circumstances not changing, many people will not yet qualify
to refinance under these reduced assessment rate offers.
Many lenders have now announced they will no longer offer cashbacks going forward, and those remaining in the space are talking about offering lower cashback amounts than before.
CBA also announced another out-of-cycle rate hike for new customers, another 10bp following the 10bp recently, this is consistent with them announcing to the market that they are going to increase their net interest margins. This is not a good trend for borrowers.
Lowe announced to MPs this week that he had “no tolerance for lingering high inflation and would do what he believed needed to be done to bring it down”, implying it is very possible that we could see more hikes from here.
This is despite us being in the steepest hiking cycle in modern
history.
In property price news
Prices continued to surge higher this week, with the RPData daily
figures looking very supportive. I believe we are seeing some
fatigue around waiting for stock, and with increasing rents, people
are starting to consider making purchases in some markets.
Sydney is up 4.2% for the quarter, Perth up 2.2%, Brisbane up 1.9%, Melbourne up 1.4% and Adelaide up 0.8% - some strong results for the quarter
Truflation data shows that US forward looking inflation dropped to 2.88% yesterday on their model, and UK inflation has decreased from over 21% down to 13% in the last 6 months.
Oil and Bond Yields
WTI Crude oil rose again this week from $71.67 last week to $72.87, the big news however is how yields are looking. The 2-Year Treasury yield jumped from 3.682% last week to 4.568% this week.
Risk Assets
Many equity indexes continue to show strength trading at or near all-time highs, including India's Sensex, Japans Nikkei 225 and the German Dax
ASX Rate Tracker
Interest rate markets continue to show a similar curve to last week, with only 1 rate cut potentially priced in, and markets again are not expecting another hike next month.
And the business quote of the week is
“Mimicking the herd invites regression to the mean (merely average
performance).” - Charlie Munger