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Mutual Daily Mutterings


Quote of the day…

”Tell a man that there are 400 billion stars and he’ll believe you.  Tell him a bench has wet paint and he has to touch it”…Steven Wright






“Hyperinflated Blood Pressure…




“Too little, too late…”




Overview…”Houston, we have inversion …just”

  • Moves: modest risk off … stocks , bond yields , credit spreads , volatility and oil ….
  • Last week’s stock rebound and drop in volatility may have been a flash in the pan as markets again begin to fret over the path of monetary tightening amid an ever-deteriorating situation in Ukraine.  It was a mild case of angst and hand-wringing overnight.  Stocks closed off a touch, spending most of the day in the red, with sentiment dented by hawkish comments from Fed Chair, Powell.  By day’s end, however, stocks were generally unfazed.  Powell talked about the potential to tighten policy above the neutral rate if needed, and willingness to go harder than +25 bps per meeting.  The likelihood of a +50 bp hike at the next meeting is now in play.
  • While stocks may have been unfazed, bonds were in a right-royal tizz.  Bond yields went stratospheric, with the 3’s – 10’s treasury curve inverting, historically a precursor to recession (not always, but often enough).  “With a renewed openness to 50-basis-point moves mixed with a balance-sheet runoff, it appears the Fed is more than prepared to look through these inversions as it focuses on the main fight of bringing down inflation…” (Bloomberg)
  • Talking heads…”as the Fed progresses down this path of both hiking rates and shrinking their balance sheet, there will be no such thing as a soft landing.  The only question is how much of an economic slowdown are they willing to tolerate in order to quell consumer price inflation at the same time asset price inflation deflates along with balance sheet shrinkage.
  • And…”we do now see a higher risk of the Fed slamming the brakes on the economy as it may have talked itself into a corner…the cost to growth and employment could be high, if the Fed were to fully deliver on its rate path.
  • The conflict in Ukraine has sent commodity prices, chief amongst them being oil, through the roof.  And, there is nothing to suggest we’ll see them come back down to earth anytime soon.  Within this backdrop, the outlook for inflation is, well, the sky’s the limit as long as the war persists….and potentially longer.  Oil was on the rise again overnight, with WTI futures above US$110/bl and Brent at US$116/bl, +17.6% since the onset of official hostilities in Ukraine.


The Long Story….

  • The war impact so far….


Fixed Income…

Source: Bloomberg, Mutual Limited



Source: Bloomberg, Mutual Limited


Source: Bloomberg, Mutual Limited


  • Offshore Stocks – generally a softer risk tone across European markets overnight, albeit pretty modest.  US markets closed off their lows and marginally in the red with the DOW down -0.6%, the S&P 500 essentially flat and the NASDAQ down -0.4%.  The sharp spike in bond yields cause some initial angst, but as the day wore on the tone firmed up a touch, and in after markets futures are firmer.  Within the S&P 500, around 62% of stocks retreated, and only a handful of sectors gained ground.  Energy (+3.8%) did all the heavy lifting, with supporting efforts from Materials (+0.9%), Utilities (+0.7%), Industrials (+0.2%) and Staples (+0.1%).  The main headwind came from Discretionary (-0.8%), Telcos (-0.7%), and REITS (-0.5%).  “Slower growth and higher costs are likely to pressure company earnings as well.  Goldman recently cut S&P 500 earnings-per-share estimates, and its index target, to incorporate forecasts for slower economic growth and more expensive commodity prices. The firm set a 2022 SPX target of 4700 (vs 4461 close last night), with an implied forward PE of 20x — which is relatively high, ranking in the 85th percentile historically (though relative to real Treasury yields, the year-end earnings yield gap would only rank at the 33rd percentile).” (Bloomberg)
  • Local Stocks – perhaps local investors caught wind of the change in offshore tone, closing marginally down yesterday, despite positive leads from Friday night’s offshore session.  Just under 60% of ASX 200 stocks retreated.  Tech (+2.5%) fought hard, ably supported by Utilities (+0.8%) and Energy (+0.4%), but in the end headwinds from Industrials (-1.2%), Healthcare (-1.0%) and Telcos (-0.6%) dragged the broader index into the red.  Financials (-0.6%), however, inflicted most of the downside pain.  Despite the softer offshore narrative, futures are actually firmly in the green, +1.1%.


Source: Bloomberg


  • Offshore credit – the spike in yields was no obstacle to primary market activity with US$16bn priced in US IG markets, more than half the volume forecast for the whole week (US$30bn), although analysts were / are expected weekly issuance to be front loaded. Spreads continued to grind tighter with another 2 bps of tightening across key cash indices.  CDS indices were +8 – 9 bps wider suggesting a marked deterioration in sentiment, however yesterday was roll day, when constituents within each index are subbed in and out and the maturity of the contract extended, from 4.5 years to 5.0 years.  I haven’t seen details on constituent changes, but given the price change, I’d suggest it was very much like for like subbing, if any at all, so much of the widening was duration extension.


Source: Bloomberg


  • Local Credit – local investors remain dubious of the recent improvement in risk tone, and rightly so I say.  It was so quiet in markets yesterday I’m not even going to bother pilfering trader’s comments.  They did report light flows and what flow there was, it was weighted to the front end, and better selling there.  Fixed paper was better bid, likely reflecting a growing view that yields have overshot to the high side….that trade might sting a bit today. Major bank senior paper closed unchanged across the curve with 5Y paper at +90 bps and implied 5Y primary at +100 bps, give or take.  Three-year senior is at +67 bps.  Also unchanged in the tier 2 space and we’re hearing continued whispers of a likely deal this week.  The major bank 2026 callable tier 2 cohort is hovering around +175 – 180 bps, with the longest being the NAB Nov-26 at +180 bps.  I’d suggest a new deal, a major bank 10-NC-5 say, would have to start its courtship with investors in the low 200’s to be taken seriously.


Source: Bloomberg


  • Bonds & Rates – strap in, it’s going to be a tough day in the trenches.  We’ll ignore yesterday’s movements locally, irrelevant.  Last night we witnessed another marked sell-off in bonds with US 10Y treasury yields rising +15 bps to 2.30% and 2Y treasuries rose +18 bps to 2.12%, almost three-year highs.  We also saw the US 3’s 10’s curve invert, albeit ever so slightly (-2 bps).  The last time this happened was in December 2006, and before that September 1999….and a handful of times between 1965 and the early 1980’s.  So, we’re in reasonably rare air.  Historically, curve inversion has been a precursor to recession – more often than not, but not always.  European bonds yields also rose, up 10 – 15 bps.
  • We’ll likely see ACGB 3Y yields breach the 2.0% level today (closed 1.96% yesterday) if we follow offshore leads, which local markets tend to do 9.5 times out of 10.0.  At a guess, I’d say we could see 10Y yields over 2.70% (closed at 2.59% yesterday).  Fixed rate indices and funds will be smashed today, I’m guessing a -1.0% day for the AusBond ACGB index, so crash helmets on for those that dabble in the dark arts (duration).
  • For those who get excited about technical trading and such…”ten-year yields are testing their four-decade declining tend channel. At 2.22%, the yields are also not far from the Fed’s long-term dots of 2.375%, which has been a ceiling for yields in recent years. Both would suggest that further increases in yields may face some resistance. By the same token, a convincing break of the long-term trend would point to a regime change in the bond market.



Source: Bloomberg


  • Macro – data flow was light on, with primary focus on Fed Chair Powell’s comments….he was “speaking at a NABE Economic Policy Conference and noted that the Fed needs to take the “necessary steps to lower inflation. It may be appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” and “if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.” Powell also noted that the Fed is no longer assuming significant relief on supply chain issues and will be looking at “actual progress” on inflation to guide interest rate decisions.” (NAB).  No major data releases today, but RBA Guvna Lowe is out and about speaking.






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%