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Mutual Daily Mutterings

Quote of the day…

”War itself is, or course, a form of madness.  It’s hardly a civilised pursuit.  It’s amazing how we spend so much time inventing devices to kill each other and so little time working on how to achieve peace ”… Walter Cronkite








“High Expectations…




“Мини Я…(aka ‘Mini Me’)”




Overview…”the invasion continues…”

  • Moves: risk off…stocks ↓, bond yields ↓, credit spreads ↑, volatility ↑ and oil ↑….
  • The Russian vs Ukraine conflict raged on overnight.  Representatives from both sides met for talks on potentially ending the conflict, but the outcome was nothing more substantive than, “let’s do brunch!”…i.e. an agreement to meet again.  Sanctions amped up further with Russian imposing their own – banning residents from transferring hard currency abroad, including to meet loan repayments.  The ruble has soiled itself already (↓32%), so much of the damage is done.  Bank of Russia more than doubled interest rates to 20% in a futile attempt to protect the ruble.  Ukraine formally requested admittance to the EU in a bid to shore up support…not sure that’ll have any success, might be a little too provocative.
  • It was a volatile session in markets overnight and the broad tone was undeniably ‘risk off’.  A lot of red across equity screens, led south by the S&P 500.  S&P 500 March futures are down almost -3.0%.  Russia cancelled trading of stocks, while London-listed shares of Russian companies “cratered,” down 50% – 80%.  Bonds were popular (yields ↓) on safe haven demand, but much of that move came at the open.  Oil traded off session highs as the US and its allies consider releasing about 60 million barrels of crude from emergency stockpiles to quell supply fears.
  • The best of the talking heads…”the situation in Ukraine remains highly unpredictable with no simple off-ramp. Investors are advised to stretch their time horizon, as events in the region continue to create challenges in the near term,”…“this invasion simply adds another risk to the mix that’s unlikely to disappear quickly…in a world where valuations remain elevated and earnings risk is rising, last week’s tactical rally in equities will likely run out of momentum in March as the Fed begins to tighten in earnest and the earnings picture deteriorates.
  • And if you’re a glass half-full kind of person….”we do not view this as a time to de-risk…drawdowns based on geopolitical events have been brief: If we look at S&P 500 performance following key military conflicts since 1945, markets were usually down within the first week.  But on 14 of the 18 occasions, they were up within three months, with a median performance of around +2.0%”

The Long Story….

  • Offshore Stocks – “Stocks with ties to Russia are tumbling after the Bank of Russia halted trading in Moscow on Monday, and declines may yet deepen.” (Bloomberg).  The VanEck Russia ETF, which is the largest ETF focused on Russian equities plunged -31% overnight.   Despite the sea of red, there were some shoots of green here and there, with the risk tone appearing to improve through the latter half of the trading day.  The S&P 500 popped its nose above water for a whiff of positive air, but then was smacked over the beak with a rolled-up newspaper, heading south again (-1.6%), only to rally strongly into the close, ending just -0.2% down.  The NASDAQ was able to claw its way into positive territory (+0.4%).  Within the S&P 500, seven out of eleven sectors retreated, with REITS (-1.8%), Financials (-1.5%) and Staples (-1.3%) retreating most.  Energy (+2.6%), Industrials (+0.7%) and Discretionary (+0.6%) performed best on the day.  Over the month the S&P 500 lost -3.2%, while the DOW lost -3.5% and the NASDAQ lost -3.4%.  European stocks have lost 4.0% – 6.0%.
  • Local Stocks – despite US and EU futures under heavy selling pressure through the Aussie trading session, down anywhere between -1.6% and – 3.5%, the ASX 200 remained buoyant, closing up +0.7% on the day, and up +1.1% over the month.  Gains were underpinned by Materials (+3.0%) with eight out of ten companies advancing.  Within the broader ASX 200, around 60% of stocks were able to gain ground, and sector level winners outweighed losers by eight-to-three.  Energy (+1.4%), and REITS (+0.9%) played supporting roles.  Financials (-0.3%) was the main headwind for the broader index, although the sector closed well off its intra-day lows.  Just over half of the sector’s constituents retreated, an improvement from 75% down intra-day.  Once again, the local market is very much ignoring the global risk off tone…although the same could be said of regional stocks with both the NIKKEI and CSI 300 gaining ground yesterday.  The HANG SENG is wallowing in misery as Hong Kong deals with a COVID outbreak in a particularly heavy-handed way…almost makes Chairman Dan look like a nice guy by comparison…bahahahahaha!  ASX 200 futures are clinging to some early gains, while regional indices are all in the red.



  • Offshore credit – spreads are a bit squiffy again with CDS pushing higher.  MAIN (EU) is +3.4 bps higher, while CDX (US) has shown a little more resilience, just +1.2 bps higher.  Within the MAIN, Senior Financials are +5 bps higher, and Sub Financials are +9 bps higher.  Cash spreads were around +3.0 bps to +3.5 bps wider, primarily across Financials (US & EU), whereas Corporates closed largely unchanged.  Over February, US IG spreads have widened +15 – 20 bps (Corporate outperformed Financials), while in EU IG, spreads were +28 – 33 bps wider (Corporates underperformed Financials).  Primary action dried up overnight as a range of deals were postponed pending some calm and clarity around the geopolitical situation.
  • Local Credit – traders opening comments yesterday morning…”AUD spreads opening +1 to +5 bps wider on the weekend Russian/Ukraine headlines with futures rallying -14 bps from Australian open. Flows are quiet to start with investors waiting to see how equities open. This morning, we are opening corporates wider with special attention to BBBs which have been trading heavy. We are also unwinding the move tighter we saw in subs on Friday which was driven by RM buying, and are opening subs +2 bps – 5 bps wider. Senior financials opening a touch wider with recent issues better offered yet bid away at unchanged levels on Friday.”  By day’s end the move in major bank senior spreads was muted.  Five-year paper was marked +1 bps wider at +73 bps, while 3Y was also +1 bps wider at +48 bps.  Over the month major bank senior 5Y spreads closed +5 bps wider.  In the tier 2 space, major bank spreads drifted wider on the day, just a basis point across the curve.  The 2026 callable cohort is pricing around +150 – 154 bps and the 2025’s at +138 – 139 bps.  Tier 2 spreads are up to +14 bps wider over February.  Traders are reporting that “liquidity remains extremely poor with clients waiting for volatility to pass and much of the street positioned the same way.” Spreads should remain resilient within this back drop.  The big risk is we see a round of redemptions across the market, necessitating forced selling.  This would accelerate spread widening.



Source: Bloomberg, Mutual Limited



  • Bonds & Rates – local bond yields rallied on safe haven demand as the Russian vs Ukraine situation deteriorated over the weekend.  Three-year yields dropped -13 bps to 1.55%, while ten-year yields were down -10 bps to 2.14%.  Despite the recent rally, yields are materially higher YTD, up +50 – 65 bps as markets continue to price inflationary concerns and normalising monetary policies.  Some commentary on Fed policy…”markets still don’t get how far the Fed might go in raising rates, Bill Dudley writes. Forecasts that rates will be around 2% by late 2023 ignore that household balance sheets are healthy and their debts mostly shielded from hikes. Also, they forget faster inflation is the debtor’s friend. If raising rates to 2% won’t unduly slow the economy, the Fed will simply have to take rates even higher.” (Bloomberg)





  • Another tough month for fixed income investors with fixed rate indices all printing in the red, led ably from the front by ACGB’s, -1.31% return for February as bond yields rose +23 – 24 bps.  Reflecting the power of duration, yesterday’s 10 – 11 bps rally in bonds reduced the MTD loss on the ACGB index from -1.96% to -1.31%, a 65 bps improvement.  Semi’s lost -1.15% on the month, while fixed credit dropped -1.07%.  The FRN index lost a solitary basis point, which reflects the benefit of minimal duration in the midst of a rising interest rate cycle (chart below).  Returns on Mutual Limited’s funds are still being calculated, but something in the order of the FRN index performance is expected, give or take a few basis points.  Geopolitical risk aside, tightening monetary policies are expected to remain a key upward influence on of interest rates as central banks look to manage inflation risk and normalise monetary policies.



Source: Bloomberg, Mutual Limited



  • Macro – we have the RBA today with the board expected to sit on their hands with official rates, unchanged at 0.10%, despite strong employment and demand.  The board’s dovish stance is based on subdued wage growth, which is seen as an obstacle to sustainable inflation within the bank’s 2% – 3% target range.  The Ukraine will only support that dovish stance. Markets don’t necessarily agree with this stance with rate hikes priced from July (ish)





Steak knives…some commentary (not mine, I’ve cherry-picked it from Bloomberg) on the economic impact of sanctions….

  • A wonderfully-named discussion paper ‘Crimea and Punishment: The Impact of Sanctions on Russian and European Economies’ published by the German Institute for Economic Research in 2016 found that the restrictions cost Russia ~2.0% of quarter-on-quarter GDP growth. The impact on growth in the euro area was negligible, and mostly through the channel of the weaker ruble. On the other hand, the lower oil price reduced the cost of imports from Russia and may have mitigated some of the impact of sanctions on European economies.
  • A 2017 study by Morad Bali of Duke University found that EU exports to Russia dropped ~30% on average between 2014 and 2016, led by food and live animals. For Russia’s trading partners, sanctions were like “a tremendous millstone around their neck, whereas the expected political results are non-existent.” But an analysis by CEPS, a Brussels think tank, found that the impact of sanctions was in fact limited.  The CEPS analysis focused on the share of the EU in overall Russian trade and found that it hadn’t declined relative to countries that hadn’t imposed sanctions. Russian imports fell overall, but oil was cratering the ruble, which may have helped slow imports.






Click here to find the full PDF from our Chief Investment Officer’s daily market update.



Scott Rundell, Chief Investment Officer

T: +61 3 8681 1907



Mutual Limited Daily Update

Mutual Funds

MCTDF – Mutual Cash Fund
Gross running yield: 0.31%
MIF – Mutual Income Fund
Gross running yield: 1.37%
Yield to maturity: 1.00%
MCF – Mutual Credit Fund
Gross running yield: 2.73%
Yield to maturity: 1.90%
MHYF – Mutual High Yield Fund
Gross running yield: 5.04%
Yield to maturity: 4.23%