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Mutual Daily Mutterings


Quote of the day…


“It’s Friday the 13th.  This simply means that most people will blame withcraft for their own regular stupidity” – random






“Long Divorce Lawyers




“Master Of Gaslighting…”




Overview…”Paraskevidekatriaphobia…fear of Friday the 13th



  • Moves: risk off… stocks , bond yields , curve , credit spreads , volatility and oil ….


  • Another volatile session that threatened to throw the S&P 500 into a bear pit, down almost -2.0% with an hour in the trading day to go.  Soothing words from the SanFran Fed president, Mary Daly, eased investor concern – for now as she assured markets that +75 bp rate hikes were not the Fed’s “primary consideration,” and that the US is in a strong place and should be able to withstand monetary tightening.


  • Not to leave Mary hanging, the main man, the newly re-appointed grand poo-ba of US monetary policy, Jerome Powell, stated on the wires “if the economy performs about as expected, that it would be appropriate for there to be additional 50-basis point increases at the next two meetings” and +75 bp hikes were not being “actively considered.”  But, if you’re a glass-half-full kind of investor, Powell threw out this nugget of hope… “if things come in better than we expect, then we’re prepared to do less.”….unfortunately, he also said “if they come in worse than when we expect, then we’re prepared to do more.”  Something for everyone, I guess.


  • US equity markets have lost US$6 trillion since the end of March as investors fret over the impact of tightening monetary policy (and the inflation necessitating it) – that’s six times the ransom Dr Evil demanded!  Are we there yet…?  Apparently not….”we are not at a bottom, but may be at the beginning of one.  A bottom needs everyone to give up hope” (Citigroup).  When an equity market begins to exit bubble territory, as it is doing now, ‘value stocks’ typically outperform ‘growth stocks’, -9.2% vs -20.6% respectively (since March).


  • Bonds rallied (yields lower), particularly across European markets, with GILTS, OATS and BUNDS all -14 – 16 bps lower.  US treasury yields dropped -6 bps in the 2’s and 10’s, the latter is now below 3.0%.  In other related interest rate news  “US mortgage rates jumped again this week, extending a steep climb that is shutting some would-be homebuyers out of the market. The average for a 30-year loan was 5.30%, up from 5.27% last week and the highest since July 2009, Freddie Mac said Thursday.” (Bloomberg)


  • Talking heads…”right now, confidence is shaken among market participants and people are in no mood to take on risk.  Even when we see periods of relative calm, it doesn’t last very long.” And…”even though we should reach peak inflation soon, the issue of inflation is not going to subside enough to avoid stagflation from becoming a bigger problem…therefore, any near-term bounce should be sold, even if that bounce lasts a couple of weeks.



The Long Story….


  • Offshore Stocks – a solid recovery over the final hour of trade saw the S&P 500 almost in positive territory.  Down almost -2.0% with an hour in the trading to go when Fed members cooed some soothing words and patted baby powder on the bot-bot of markets, sending the S&P 500 higher, closing just down on the day (-0.1%).  Just under 60% of stocks advance, with the majority of sectors sporting some green.  Tech (-1.1%) struggled, as did Financials (-0.7%) and Materials (-0.2%).  Healthcare (+0.9%), Discretionary (+0.8%) and REITS (+0.7%) performed well.  The index remains in oversold territory technically with an RSI of 31.5.


  • A note from Citigroup equity strategists urges caution as the US starts to exit bubble territory, with growth stocks to underperform value stocks.  Citi said the US stock market entered bubble territory in October 2020, and that most of the froth has been concentrated in non-profitable American technology companies. Other global assets, including US real estate, aren’t triggering bubble warnings.  “When a major equity market bubble is deflating, it may undermine most global equity markets, not just the one that is deflating,” Citi strategists said. “This would suggest that a potentially deflating US bubble should be a negative for equity risk more broadly.” As the Federal hikes rates in response to inflationary pressures, expensive growth shares have suffered as higher rates mean a bigger discount for the present value of future earnings.  This marks a shift in investor outlook after tech stocks had been some of the market’s best performers for years.   Since the end of March, the S&P 500 Growth Index has lost -20.6% vs -9.2% for the S&P 500 Value Index…per the chart below, we see the value index (SCX) is also much less volatile than the growth index (SGX), which makes sense.


  • S&P 500 value vs growth…


Source: Bloomberg


  • Local Stocks – a day to forget for the ASX 200, dusting -1.8% with nary a positive to touch on.  Just on 92% of stocks retreated and no sector escaped without damage.  The best of the worst was Utilities (-0.6%), followed by Financials (-0.8%).  All other sectors fell by more than -1.0%.  While Financials was second best performing on the day, given its dominance within the index, it was the second highest contributor to the downside for the broader market.  Materials (-1.8%) did the bulk of damage on a weighted basis.  For straight line performance, Energy (-2.3%), Discretionary (-2.2%) and REITS (-2.1%) were the worst offenders.  Relative strength indicators are signalling oversold with an RSI of 28.8 (anything sub 30.0 is ‘oversold’) – charted below.  Forward PE’s are down to 14.3x, well below the pre-pandemic 5-year average of 16.1x, which is signalling lack of confidence around earnings growth…having said that, forward EPS forecasts are stubbornly high at $485.65, which reflects YTD growth of +21.8%, which is just cray-cray.  According to Bloomberg, ASX 200 forward EPS is at post financial crisis highs…in fact, they’re at 20-year highs…that can’t be right.  Maybe if I smack the side of the screen a bit, must be a glitch!  Futures are marginally in the red, -0.1%.


  • ASX 200 Relative Strength Indicators


Source: Bloomberg


  • Offshore credit – return of primary with six-deals done for US$11.5bn priced.  While constituting the largest single-day volume tally in more than three weeks, last night’s calendar was marred by mixed pricing outcomes as broader macro volatility continues to hinder the high-grade funding landscape.  Issuers paid over +20 bps in new issue concessions for the second time this week on order books that were 3.4x covered (which is solid vs 2021 averages); order book attrition was minimal at about 11%.  New issue supply has waned. YTD volume recently fell behind 2021’s pace; weekly volume is 27% below consensus estimates while the $40bn priced in May – historically a robust month – accounts for just 30% of $135bn projected as we approach May’s midpoint.  Lack of investor conviction remains an issue – Refinitiv Lipper data indicates that high-grade funds saw more than US$8bn in redemptions for the week ended May 11th, the fourth largest outflow on record and the 12th in the last thirteen weeks.  Spreads drifted, no meaningful change in levels or momentum.


  • Local Credit – main news of the day yesterday was WBC hitting markets with a covered deal (3-year) and senior deal (5-year).  The latter was guided at a chunky +107 bps, some +10 bps wide of ANZ’s recent deal (priced at +97 bps), which highlights the level of concern vis a vis liquidity (largely absent) and risk aversion amongst investors – i.e. the perceived need to pay-up to secure volume.  The covered deal was guided at +75 bps (area).  Traders noted they “anticipate a solid reception and the size of concession on offer plus fact the book is open overnight leads us to believe they will look to print size.”  As of this morning the 3-year covered book has reached $1.2bn across FRN ($835m) and fixed ($375m).  The senior book is also around the $1.2bn market, and unlike the ANZ deal, the fixed line is looking anaemic at $140m, leaving the FRN at $1.1bn.  As usual, no change in price guidance.  Books expected to close at noon our time.


  • Major bank 5-year senior paper north of +100 bps is pretty rare-air.  Of the publicly traded deals in the market, just five existing deals carry issue margins above +100 bps (as high as +114 bps), and over the past five years, spreads have traded wide of +100 bps around the 5-year part of the curve less than 5% of the time.  I expect the new WBC deal to price around +100 – 102 bps. As a result of the new deal, traders have marked the major bank senior curve wider and higher.  Five-year paper is now out to +102 bps (+5.5 bps CoD), while 4-year paper is +4 bps, out to +92 bps and 3-year is out +1 bp to +78 bps.  I’ve been calling the top in major bank spreads for a week or two now, which obviously has been wrong,  Murphy’s Law I guess.  I’m not bothered, if we’re not at the top, we’re not far from it and I’d suggest supply will moderate post this deal – in senior at least.


  • If senior is wider, then so is tier 2…traders “risk off and a wider senior curve sees spreads continue to drift. We note small bids beginning to emerge from one real money account, promising signs though too small to counter the push in spreads.”  CBA’s recent Apr-27 is now quoted at +212 bps (+2 bps CoD) vs an issue margin of +190 bps…so, you’d need to take your shoes and socks off to count the difference…and then some.  The 2026 callables are at +196 – 203 bps (+3 bps CoD), while the 2025’s are at +186 – 188 bps (+1 bp CoD).  If WBC is hitting the market in size in senior, there is as decent chance we’ll not see another tier 2 deal anytime soon, which should moderate spread widening biases…all other things being equal.  If futures are to be believed, CBA’s Apr-27 will be spitting out coupons approaching 5.0% by year end…when was the last time you saw a relatively safe investment grade credit generating coupons close to 5.0%?


  • Major Bank 5-year senior paper…historical …


Source: Bloomberg, Mutual Limited


  • Bonds & Rates – growth concerns, on the back of inflationary pressures and monetary policy action has begun to weigh on sentiment, which is placing downward pressure on yields.  We’ve been expecting this for a few weeks now…better to be late than never.  Yesterday we saw ACGB 3-year yield drop -5 bps to 2.895% and 10-year yields down -8 bps to 3.426%, or -14 bps from recent peaks (3.565%).  Macro activity data is beginning to highlight weaknesses around the growth narrative, which is feeding very much into the back end of the curve.  The front end will be leveraged to monetary policy expectations, with a fairly aggressive hike cycle priced in.  While the RBA is signalling a terminal rate of 2.5% (ish), which would be the lowest hike cycle on record (locally), market is instead pricing in a higher terminal rate of 3.5% (ish).  The market vs RBA spread differential here signals the market is calling bull-@#$% on the RBA’s forecasts, which is somewhat understandable, they haven’t exactly covered themselves in glory so far.  Offshore leads suggest further rally in local bonds, with further bull flattening.


  • ACGB curve – week on week change, flatter (bull)…


Source: Bloomberg


  • A$ Fixed Income Markets…note 90 day bank bills are approaching 1.00%


Source: Bloomberg


  • Macro “Rising US producer prices –Producer prices in the US posted another solid monthly rise in April while the March estimate was revised up. While the core measures may show some moderation in price pressures, the data shows that producer price pressures remain elevated and this is likely to continue to filter through into consumer prices.” (NAB)


  • Charts…





Source: Bloomberg, Mutual Limited



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Scott Rundell, Chief Investment Officer

T: +61 3 8681 1907



Mutual Limited Daily Update

Mutual Funds

MCTDF – Mutual Cash Fund
Gross running yield: 0.50%
MIF – Mutual Income Fund
Gross running yield: 1.57%
Yield to maturity: 1.66%
MCF – Mutual Credit Fund
Gross running yield: 2.85%
Yield to maturity: 2.44%
MHYF – Mutual High Yield Fund
Gross running yield: 5.93%
Yield to maturity: 5.89%