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Mutual Daily Mutterings


Quote of the day…

My fellow Americans, I am pleased to tell you I just signed legislation which outlaws Russia forever. The bombing begins in five minutes.”…Former POTUS, Ronald Reagan








“That Sinking Feeling…”




Overview…” Choppy, choppy, chop, chop …”

  • Moves: Risk on generally … Stocks ↑, bond yields ↔, credit spreads ↓, volatility ↓ and oil ↑….
  • Following strong Asian leads, European stocks oscillated between gains and losses all session, closing mixed.  US stocks opened weaker on comments out of Russia that peace talks had stalled, but then turned course on news that JPM had processed funds earmarked for interest payments due on Russian Government US$ debt.  Processing the payments makes some sense.  Sure, punish Russia with sanctions for their bully-boy behaviour, but don’t necessarily jeopardise financial market stability elsewhere by not processing their interest payments.
  • POTUS Biden & President Xi are scheduled to chat about the Russia vs Ukraine situation “with the US ready to end regular trade relationship with Russia and also increase tariffs on Chinese goods if China provides support to Russia. Putin continues to threaten to use nuclear weapons if resistance from the west continues so things will probably look worse before they get any better.” (BAML)
  • Mixed also in bonds, with European yields lower, while US treasuries “wavered a day after a bond-market indicator (curve flattening) flashed concern the economy could buckle under the weight of the Federal Reserve’s most aggressive rate-hike campaign in two decades.” (Bloomberg).  The BoE hiked rates, another +25 bps to 0.75%, its pre-pandemic level, with more likely to come over months ahead.
  • Oil jumped back above US$100/bl on production concerns.  Speaking to former colleagues who know a thing or two about commodities, the problem with the supply and production side of things is under-investment across OPEC nations has left productive capacity unreliable. Consequently, some traders are calling oil at US$200/bl by year-end.
  • Talking heads…”sentiment continues to be driven almost entirely by geopolitics, with the market quick to forget or ignore everything else.  As we saw yesterday, the markets have been eager to rally on any positive news… but then sells off as investors realize that the two sides remain far apart in terms of a ceasefire and end of the war.”

The Long Story….

  • The war impact so far….
Fixed Income…

Source: Bloomberg, Mutual Limited

Stocks…there’s a war going on, really?

Source: Bloomberg, Mutual Limited


Source: Bloomberg, Mutual Limited

  • Offshore Stocks – solid gains across US stocks, although the catalyst identified in the narrative is dubious, in the sense that it doesn’t necessarily fill me with great optimism of future performance.  The DOW and S&P 500 both gained +1.2%, while NASDAQ marginally outperformed, up +1.3%.  European markets were mixed, FTSE up +1.3%, EUR STOXX down a smidge.  Within the S&P 500 some 83% of stocks advanced with all sectors sporting optimistic shades of green.  Energy (+3.5%) led the pack on oil bouncing again, followed by Materials (+2.0%) and Discretionary (+1.9%).  The least-best sectors included Utilities (+0.5%), Staples (+0.6%) and Tech (+0.7%).  US markets are back to pre-war levels.
  • I saw the following nugget of wisdom on the wires this morning…”if history is any guide, stock investors shouldn’t be too concerned about the Fed’s decision to tighten policy. Between June 2004 and June 2006, officials raised rates 17 times, with the S&P 500 posting gains of about +12% in the span. The 2015-2018 monetary tightening period was even more positive for risk assets as the index surged about +21%.” If you chart the Fed Funds Rate and S&P 500 back far enough, optically this assertion is generally true of other periods of tightening also (blue line vs white line below).  But, if you overlay these two with the Fed’s balance sheet (orange line), you could argue the Fed’s balance sheet has more influence on stocks than the Fed’s rate settings.  Having said all that, I find it quite difficult to get too bulled up over stocks for the year ahead.



Source: Bloomberg



  • Local Stocks – another day of solid gains with the ASX 200, up +1.1%.  Again, around three-quarters of the index advanced, while only two sectors failed to fire, namely Utilities (-0.6%) and Staples (-0.2%).  Tech (+3.6%) enjoyed line honours, followed by Materials (+1.4%) and Industrials (+1.2%). Materials was the major contributor to the day’s performance (about a third of it), followed by Financials (+1.0%), which contributed just under a third of the broader index’s gains.  Futures are pointing to more modest gains this morning (+0.5%).



Source: Bloomberg



  • Offshore credit – offshore credit seemingly turning the corner now that the Fed is in the game and the path of rate hikes “formalised” – although there is still scope for policy error, a risk that shouldn’t be ignored.  Spreads are tighter on the day, the third consecutive day of tightening. US IG Financials are -17 bps tighter on the week to +131 bps, while US IG Corporates are -7 bps to +136 bps (both Bloomberg Indices).  Spreads across US IG credit broadly are still +10 – 12 bps wide of where they were on the eve of the Russia vs Ukraine War, but have clawed more than 60% of the spread widening observed since the tanks rolled in.  European IG spreads have shown considerably more stability, just +2 – 7 bps wider over the same time frame.    In CDS, the MAIN (EU) index is actually -1 bp tighter since the invasion, as is the CDX (US).



Source: Bloomberg



  • Local Credit – some stability again in spreads with both major senior and tier 2 closing unchanged, which is the first for a week or so if memory serves.  Traders are reporting healthier liquidity conditions “with both investors and the street riding on the positive risk tones post the FED meeting.  Whilst trading was disrupted by the ASX futures exchange closure, we saw renewed buying after the re-open, with corporate paper being the main benefactor. Spreads closing unchanged though we take comfort from the improvement in liquidity conditions.”  Major bank 5-year is hovering around +90 bps and I’d suggest any new supply in this space would have to come north of +100 bps, unless liquidity conditions sustainably improve.  A 5-year callable tier 2 would likely need a 2-handle.  We did hear rumours of NAB sniffing around for a tier 2 deal, but nothing obviously announced.  NAB’s Nov-26 call is pricing around +178 bps and their Nov-25 call is pricing around +156 bps, so +22 bps for the year’s extra tenor.  So, take the +178 bps from the Nov-26 call, add +7 bps for duration extension, which takes us to +185 bps.  Then add +10 – 15 bps for new issue and liquidity premium and you’re at +200 bps for a new deal.



Source: Bloomberg



  • Bonds & Rates – a very modest sell-off in local bonds yesterday with ACGB 10-year yields back out to new three-year highs of 2.51% (+1 bps), helped higher by stronger than expected labour data (details below).  Yields hit 2.54%. intra-day, but then eased back as the day wore on.  With the US FOMC whipping out the first of its seven telegraphed rate hikes, the front of the ACGB curve moved higher in sympathy.  ACGB 3-year yields were +6.5 bps higher on the day at 1.88%, also new 3-year highs.  With the FOMC making its move, the AUD vs USD 10-year spread is out to +37 bps (US 10-year at 2.14%), up from +5 bps a month earlier, but still well under the post GFC average of +77 bps.
  • I pilfered the following from one of our Bloomberg chats yesterday, but can’t remember from whom…”RBA Bulletin, couple of interesting sections on Bank funding costs and money markets during the pandemic. Not new information but RBA measures “have supported very low funding costs for banks, and in turn historically low borrowing rates for households and businesses over this period. Average lending rates declined by more than funding costs over 2021, primarily reflecting competition among banks for borrowers and the associated strong refinancing activity in the housing market.”  Also noting that the RBA’s balance sheet will help to keep financial settings accommodative “the substantial increase in ES balances has also contributed to significant liquidity in money markets throughout the pandemic. The ongoing availability of funding in money markets, at much lower interest rates than before the pandemic, has helped to underpin very accommodative financial conditions across the financial system and supported the Australian economy.”



Source: Bloomberg



  • Macro – local labour data out yesterday with +77.4K jobs added through February, more than double consensus estimates (+37.0K).  Several major bank economists were calling for a strong print, and they got it, so gold clap to them.  Full time jobs drove the gains with part-time down -44.5K.  The participation rate grew to 66.4% (from 66.2%), a touch ahead of consensus estimates, reflecting strong momentum in the labour market. Importantly, the unemployment rate dropped to 4.0% vs 4.1% consensus and 4.2% in the prior period.  Unemployment is now at the lowest level since August 2008 and only the third time in the history of the monthly survey when unemployment was as low as 4.0%.  Lower unemployment rates occurred in the series before November 1974, when the survey was quarterly.  With further positive momentum expected, it’s only a matter of time before the unemployment rate is sporting a 3-handle.


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%