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Mutual Daily Mutterings


Quote of the day…

”There is more stupidity than hydrogen in the universe, and it has a longer shelf life”…Frank Zappa




“Bearbell Shrug…



“Inflation Adjusted…”




Overview…”and, we’re off …”


  • Moves: Risk on … Stocks ↑, bond yields ↑, credit spreads ↓, volatility ↓ and oil ↓….


  • The FOMC met, the FOMC chatted, the FOMC debated, the FOMC hiked…..with an 8-1 vote in favour of a +25 bps rate hike in the Fed Funds Rate to 0.50%.  One voter, Bullard, voted for a double barrel hike (+50 bps).  Bonds sold off and curves flattened, while stocks rallied.  The latter coming after some optimistic comments from Powell on the state of the US economy, and some nascent optimism around the Russia vs Ukraine conflict, with a potential off-ramp identified.  European markets were buoyant on the latter.  Oil continued to fall, dropping another -2.3% as Libya urged OPEC+ to increase supply faster.


  • Fed Chair Powell said the US economy is “very strong and well positioned to handle tighter monetary policy….and…we are attentive to the risks of further upward pressure on inflation and inflation expectations.”  He also noted that the probability of a recession is “not particularly elevated.” The Fed’s dot-plots signal likelihood of six consecutive +25 bps rate hikes over the next six FOMC meetings.  Some guidance on QE provided, but it was vague – i.e. they advised they would be in a position to announce plans to shrink the Fed’s US$8.9 trillion balance sheet by the May meeting.


  • Talking heads….the Fed finally made it official — no surprises there. That said, the Fed raising rates means a vote of confidence that the economy is in shape enough to weather tighter policies.”  Others less optimistic, suggesting the Fed is in an “inflation panic” as it begins tightening policy, and that the Fed has focused too much on financial markets and not it’s core role of managing money supply and its balance sheet. “The Fed has largely abandoned monetary orthodoxy…it’s trying to be too cute in how it’s managing this.”


  • The nugget of war optimism stems from continued talks between Russian and Ukrainian officials. “a Kremlin spokesman said that a neutral Ukraine with its own army could be a possible compromise in the current crisis, while Kyiv said it needed firm security guarantees in any outcome.” (Bloomberg). I’m hopeful of a peaceful outcome here, but at the same time I’m not really sure old Comrade Putin would be happy with that scenario.


The Long Story….


  • The war impact so far….
Fixed Income…

Source: Bloomberg, Mutual Limited


Source: Bloomberg, Mutual Limited


Source: Bloomberg, Mutual Limited


  • Offshore Stocks – a strong rally across the board overnight.  European markets were up to +4.0% higher, likely on the sniff of compromise from Russia on what it needs to end the invasion of Ukraine.  Still very early days, but fingers crossed.  This buoyancy and optimism fed into US markets with the S&P 500 and peer indices opening up stronger.  The S&P 500 index briefly erased these gains following the FOMC decision, briefly heading into the red before rebounding after Powell played down the risk of a recession and declared the economy strong enough to withstand planned policy tightening.  By day’s end, the DOW closed up +1.6%, the S&P 500 +2.2% and NASDAQ +3.8%.  Within the S&P 500, four in five stocks gained, with only two sectors retreated – Energy (-0.4%) and Utilities (-0.2%).  At the other end of the performance table, Discretionary (+3.4%) took line honours, followed by Tech (+3.3%), which has the biggest impact on the broader index.  Telcos (+2.9%) rounded out the top three.   It’s noted, with the exception of the NASDAQ, most key offshore indices are up +1.5% – 2.2% since Russia first invaded Ukraine.


  • Local Stocks – solid gains in the ASX 200 (+1.1%) yesterday with three-quarters of stocks advancing and no sector left behind.  Top of the pops for straight line performance was Tech (+3.3%), followed by Discretionary (+2.0%) and Staples (+2.0%).  Bang for buck, Financials (+1.1%) did all the heavy lifting accounting for 28% of gains.  Futures are frothy, pointing to gains of +1.5% at the open, buoyed by offshore leads, war hopes (end thereof) and soothing comments from Powell around the strength of the world’s largest economy.  The ASX 200 is now +2.6% higher since Russia invaded Ukraine, suggesting war risk is largely background noise (notwithstanding the human tragedy).


Source: Bloomberg


  • Offshore credit – quiet on the primary front given the FOMC, so no deals of significance.  With overall risk buoyant for a second day, cash credit spreads – per key indices – continued to tighten, -8 – 10 bps on the session.  CDS spreads took their cue from stocks, rallying -5 bps across both the MAIN and CDS.


European Credit Spreads

Source: Bloomberg

US Credit Spreads…

Source: Bloomberg


  • Local Credit – traders…”local credit caught no tailwinds from the modest bounce in risk, rather the market remains marred by extreme illiquidity and growing price dislocation.” Some respite in recent major bank senior widening yesterday with 5-year at +90 bps (unchanged), although one bank did advise they traded at +91 bps.  The remainder of the major bank senior curve closed unchanged also, with 3-year at +67 bps. In the tier 2 space, major bank, traders note “illiquidity prevails as we near a 7-days with zero flow of note. Unsure what breaks the spell from here…”  Same trader quoted spreads of +173 – 178 bps (+2 bps CoD) for the 2026 calls, but cautioned quoted spreads were indicative and tabled with little conviction.


  • Obviously, we’ve seen bank spreads drift wider over the recent past, which, as I said yesterday, has not been unexpected.  I still see risk of another +10 – 15 bps of widening in major bank 5-year senior as wholesale issuance dynamics normalise, and other headwinds weigh on investor risk appetite.  This would imply tier 2 spreads north of +200 bps for 5-year calls.  Spread widening has also been observed in RMBS primary markets.  YTD, we’re seeing B rated tranches +100 bps wider, while BBB rated tranches have widened +40 bps.  AA and A rated tranches are +80 bps wider.  Comments relate to prime deals.  While spreads have drifted wider YTD, performance wise, FRN’s remain your friend, delivering the best performance in the ‘fixed income’ space, that is delivering the lowest loss – charted below against the ASX 200 also for comparison.  FRN’s are down just -0.3% YTD vs -3.1% YTD for fixed rate credit, or worse still for ACGB’s (-4.2%) and Semi’s (-4.1%)




  • Bonds & Rates – a modest rally yesterday ahead of this morning’s FOMC meeting.  ACGB 10-year dropped to 2.50% and if I didn’t say it yesterday (maybe I just thought it), I think markets have overshot the mark and we could see a meaningful c.20 bps rally at some stage in the not-too-distant future. Having said that, risk of further overshoot is a clear and present danger – and we’ll get more of that today given offshore leads. Nevertheless, I see markets grinding lower to c.2.30% over the coming 6 – 9 months as growth headwinds persist and the expected hiking cycle cap the back end.


  • Local action aside, it was all about the FOMC last night…a modest sell-off in offshore back-end bonds as the FOMC kicked of its expected rate hiking cycle.  US treasuries front-end and belly of the curve dropped sharply after the FOMC rate decision where an 8-1 vote was decided to hike rates by +25 bp, with Bullard dissenting in favour of a +50 bp increase.  Two-year treasuries are +7 bps at 1.92%, while ten-year yields are +3 bps at 2.18% In the Fed’s so-called dot plot, officials’ median projection was for the benchmark rate to end 2022 at about 1.90% – in line with traders’ bets but higher than previously anticipated — and then rise to about 2.80% in 2023.  With regard to the geopolitical situation, the FOMC noted “the invasion of Ukraine by Russia is causing tremendous human and economic hardship.  The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.


Source: Bloomberg


  • Macro – “data releases were limited but the US retail sales disappointed with a large miss on sales ex auto and gas (although we note that there were large upward revisions to the January numbers). While inflation prints continue to provide upside surprise more recently there has been downside surprise to data prints as reflected by the Citi economic surprise index which has started to turn down.” (NAB).  For the day ahead…”key on the economic calendar is Australian employment data, BoE rate decision and Eurozone CPI.  On the employment data, NAB is forecasting a 50k rise in employment (market median at 40k) and the unemployment rate to fall from 4.2% to 4.0% (market median is at 4.1%).” (NAB)







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: 0.29%
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%