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Mutual Daily Mutterings


Quote of the day…


”I’m not conceited.  Conceit is a fault and I have no faults”…David Lee Roth






“That’ll Teach Them…



“Crazy Like A Fox…”




Overview…”too good to be true”

  • Moves: Risk off … Stocks ↓, bond yields ↑, credit spreads ↑, volatility ↓ and oil ↓….
  • A bit of a reality check overnight for dip buyers with stocks left moderately roughed up, some mild cuts and abrasions to go with wounds incurred earlier in the week.  Thursday’s rally BandAid is frayed and may fall off completely next week if the FOMC kicks off its tightening cycle as most in the market expect they will.  There was no respite in the Russian vs Ukraine war, discussions between both sides proved fruitless, which in of itself was not a major driver of markets on the day – i.e. the conflict is now part of the furniture.
  • Oil traded off its session lows as prices fell “amid concern surging prices could hasten the onset of demand destruction” (Bloomberg), which is something we’ve been discussing around the desk here lately.  It’s not like there is a shortage of supply, there’s plenty of it, OPEC just needs to open up the spigots and let it run free.  US CPI printed bang on estimates, +0.5% MoM and +7.9% YoY, representing 40+ year highs.  US treasuries tested the higher end of recent ranges overnight with investors anticipate 10-year yields breached 2.00% intra-day, by day’s end yields were back below 2.00%…just.
  • The ECB surprised by announcing plans to ramp up the wind down of stimulus, which is a clear signal that inflation is more of a concern than the growth hit from the war.  The bank will begin tapering its bond buying program in May, from €30bn a month to €20bn a month…still accommodative, but at a reduced rate.  Markets still expecting rate hikes come October.
  • Talking heads on US CPI….“the key here is that shelter and food, not used cars are driving the print.  Combined with the decline in real wages, this locks in the Fed’s compass….of course with the Russian invasion showing no sign of abating, it’s unlikely the next headline reading will be below expectations. The market reaction is investors finally pricing in that this war will make the Fed more, not less hawkish.
  • And…”after months of laying the groundwork for a steady and substantial tightening in monetary policy over the next year, the Fed now faces a sudden change in the economic outlook.  That said, the Fed will likely be reticent to stall rate hikes in the short term.” Long story short, the Fed will hike next week.


The Long Story….

  • The war impact so far….
Fixed Income…

Source: Bloomberg, Mutual Limited


Source: Bloomberg, Mutual Limited


Source: Bloomberg, Mutual Limited

  • Offshore Stocks –- European markets were belted again, probably on the back of the ECB announcing it will be shelling out less market candy from May, and likely a smattering of war risk – i.e. nothing fruitful coming from Russia vs Ukraine talks.  Core indices fell 2.0% – 3.0% on average.  US markets hit intra-day lows of -1.6% (S&P 500), but clawed their way back to modest losses – S&P 500 (-0.4%), DOW (-0.3%) and NASDAQ (-1.0%).  Some 62% of stocks (S&P 500) fell, while Tech (-1.8%) did most damage to the broader index, followed by Staples (-0.9%) and Financials (-0.8%).  Despite oil prices easing off a touch, Energy (+3.14%) rallied strongly. Followed by Discretionary (+1.2%).  Hard to get excited about stocks over the near term given prevailing headwinds and uncertainties.
  • Local Stocks – a decent and broad-based rally in local stocks yesterday with just shy of 80% of stocks gaining ground.  Only Energy (-2.5%) and Materials (-1.8%) noticeably underperformed, with the latter a significant headwind for the wider market.  Tech (+3.3%), Discretionary (+2.9%), Financials (+2.8%), Industrials (+2.7%), REITS (+2.5%) and Healthcare (+2.1%) all ran hot.  But, what the market gods giveth, the market gods taketh away, and futures are down -0.7% as I type.  It’s a tough market to gauge what direction sentiment will take from one day to the next, so if you’re worried about what the next 3 – 6 months will do to your wealth position, I’d be steering clear of adding equity risk here.  If, however, you have a longer-term investment horizon or focus, then adding incremental risk at these levels isn’t a bad idea.  Having said that, long run trends suggest the index is still at the top end of likely trading ranges….which is what happens when authorities pump liquidity into the system.


Source: Bloomberg



  • Offshore credit – yesterday’s reprieve in spread widening was short-lived with cash spreads edging wider again overnight.  On average, offshore (US & EU) IG cash spreads are +4 bps wider on the day and +16 – 23 bps wider month to date.  On a YTD basis, spreads are as high as 90% wider (EU Financials), but around +60% wider on average across Financials and Corporates in US and EU markets.  For comparison, A$ spreads are +25% – 34% wider, with FRN’s outperforming Fixed.   Widening spreads has done little to halt primary market action, although the offshore narrative implies than the ECB’s unexpected ruling to accelerate quantitative tightening has dampened issuance.  Nevertheless, five deals came to market (US$) overnight, with US$16bn printed.  Citigroup and Goldman Sachs lead the charge, accounting for US$11.3bn of volumes printed.  Week to date issuance has been a robust US$68bn.


Source: Bloomberg



  • Local Credit – the positive risk sentiment that permutated through broader markets yesterday was generally ignored by local credit investors, too cynical, and rightly so.  Traders are reporting that “cash spreads remain heavy and whilst the prevailing landscape is likely to inhibit a number of primary deals, it forces those that can issue locally to offer an attractive concession.” Lo and behold, enter Westpac, who priced a $2.5bn ($4.1bn book) three-year senior deal, which launched at +72 bps before settling at +69 bps, some +12 bps wider of secondary.  And, the traders views on that…”Westpac’s surprise A$3yr benchmark deal put a torpedo through the senior curve with marks closing ~6-10 bps wider… and likely renders secondary trading in shorter dates obsolete in the near term given this sudden steepening in the front end. The performance of this line will be closely monitored given the direct implications on expectations of where a new 5-year comes now. We saw minimal switch flow around this deal (nor would we expect to) but wonder what this means for other issuers who may have been monitoring the market? This undoubtedly resets the curves of multiple ADI issuers as well as the regional banks.” Major bank senior 5 year is now hovering around +90 bps (+6 bps).  Ignoring the pandemic spike, that represents levels not seen since Q1’2019, and is around +3 – 5 bps wide of ten-year averages (+86 bps).   Generic major bank three-year paper is averaging +67 bps, +10 bps on the day.
  • And, what about higher beta tier 2, well…plenty of bargains to be had there…for the brave.  Traders…”finger in the air type stuff as the pricing vacuum persists. Small volumes made big headlines yesterday yet sensible size unlikely to be found at those levels. Perhaps best to estimate where a new deal would price and extrapolate from there. These calcs may be superfluous if T2 supply is not forthcoming in this market backdrop. This remains our view, though we were not expecting yesterday’s Westpac senior deal….”…yeah, neither was I.  But, at the same time I put a decent wedge on Collingwood to make the top four this year, so judge freely on my predictive abilities.  I shouldn’t mention also that I put money on them to win the whole thing too, blindly optimistic, but what supporter isn’t at this time of the year.   Any-hoo, the tier 2 universe copped a rancid fish across the beak also, +6 – 8 bps wider across the 2026’s, which are now sporting +166 – 169 bps spreads, while the 2025’s are at +151 – 152 bps (+5 bps).
  • While spreads are attractive in the context of pandemic pricing – post the March 2020 blowout, liquidity is too fractured to be aggressively adding risk.  Having said that, longer term (>3 months), if we look at the inflationary risk and likely path of underlying yields, there is a very strong case to be mounted for favouring FRN’s over fixed rate securities within one’s defensive strategies – those designed to preserve capital.  Bloomberg AusBond fixed rate indices dusted another 21 – 26 bps of performance yesterday, in the ACGB’s and Semi’s, while fixed credit lost 13 bps.  And, for all the widening in major bank spreads, the FRN only lost 4 bps.  Month to date, fixed rate indices are down 114 – 141 bps, while FRN’s are down 19 bps.


Source: Bloomberg, Mutual Limited



  • Bonds & Rates – inflation risk and expected monetary policy settings continue to drive yields higher, comfortably outweighing any war driven ‘safe haven’ bid that might be lingering.  Local bonds pushed wider yesterday with the 3’s and 10’s at three-year highs and already at Q4’22 consensus forecasts.  More widening offshore overnight, will likely see further pressure today, albeit likely modest.


Source: Bloomberg



  • Macro – “U.S. inflation hit a new 40-year high in February and it’s going to rise even more. CPI climbed an annualized +7.9% YoY from +7.5% YoY in January, with the core hitting +6.4% YoY. Most of the impact from the surge in oil hasn’t been felt yet, with economists predicting a peak in the 8%-9% range in the next month or so. And real wages aren’t keeping up: Inflation-adjusted hourly earnings fell -2.6% YoY, the largest drop since May and the 11th straight decrease.” (Bloomberg)


Source: Bloomberg, Mutual Limited



  • Charts…

Source: Bloomberg, Mutual Limited



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: 0.29%
MIF – Mutual Income Fund
Gross running yield: 1.45%
Yield to maturity: 1.15%
MCF – Mutual Credit Fund
Gross running yield: 2.73%
Yield to maturity: 2.00%
MHYF – Mutual High Yield Fund
Gross running yield: 5.33%
Yield to maturity: 4.72%