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Mutual Daily Mutterings


Quote of the day…

“As I said about 2008, it is like watching a plane crash.  It hurts, it is not fun, and I’m not smiling” – Michael Burry






“Walk The Plank








Overview…”looking for some direction”

  • Moves: risk on… stocks , bond yields , curve , credit spreads , volatility and oil ….
  • Another volatile session in markets overnight with nary an entrenched trend to be seen.  PMI data was on the soft side vs expectations for the US, UK and Eurozone, which weighed on sentiment.  US stocks closed off their intra-day lows, led off the bottom mainly by defensive sectors.  US tech stocks plunged following Snap’s profit warning, which saw the stock’s share price fall ↓43%
  • Big brain strategists at Bank of America and Goldman Sachs are spruiking the view that US stocks may see more downside before the Fed signals an end to tightening.  “The Fed has offered no help to risk assets and appears far from stepping in,” according to Bank of America, adding that market stress indicators are now at levels seen during previous Fed interventions. Goldman said the selloff won’t end until the tightening cycle fades — which may not happen until recession is apparent.” (Bloomberg).  No arguments from me.
  • Bond yields caught a strong bid as investors sought haven assets and pared back the path of expected Fed rate hikes.  Two-year treasury yield dropped as much as ↓16 bps to 2.46% intra-day, and ten-year yields dropped as much as ↓14 bps to 2.72%.  Markets are now pricing in ~135 bps of rate increases over the Fed’s next three policy meetings, down from about ~141 bps at Monday’s close.
  • Talking heads…”the market is moving its focus – and has been for the last month or so – from inflation concerns to growth concerns,” which is something we’ve been promoting as an evolving theme for a few weeks now.  Yields are also lower across other major bond markets, although other than in GILTS (10-year yield ↓8 bps) the falls have been a bit less in other markets (10-year BUND yield ↓5 bps).  US 2-year/10-year yield curves are generally steeper.
  • Monetary policy abroad….”ECB officials remain hawkish – after President Lagarde’s support the previous day for hikes to begin in July, ECB Governing Council member Holzmann (Austria) said the first move in July should be 50 bps and Kazaks (Latvia) also said a 50 bps hike should be on the table.  Lagarde and Bank of France President Villeroy have both nominated 1.0% – 2.0% as a neutral rate in Europe, although yesterday Villeroy said the 50 bp hikes being mentioned by some fellow governing council members are not consensus.” (NAB)
  • Swinging back to the US, market guru (to some), Bill Ackman has pointed the finger at the Fed, claiming investors are not confident the bank can get inflation under control.  “The only way to stop today’s raging inflation is with aggressive monetary tightening or with a collapse in the economy.  If the Fed doesn’t do its job, the market will do the Fed’s job, and that is what is happening now.” (Bloomberg).


The Long Story….

  • Offshore Stocks – could have been worse.  Markets were down over -2.0% in early trading (S&P 500) before gradually clawing back some lost ground.    Stocks were broadly lower across the board, although the DOW’s greater weighting to old school defensives saw it eke out modest gains (+0.2%).  The S&P 500 lost -0.8% in the end, and the NASDAQ lost -2.4% as tech stocks took it in the neck on earnings concerns.  Within the S&P 500 just under 60% of stocks retreated and six out of eleven sectors closed lower.  Defensives performed best, with Utilities (+2.0%) the teacher’s pet, followed by Staples (+1.7%) and REITS (+1.2%).  Sitting in the corner with the ‘Dunce’s Cap’ on we had Telcos (-3.7%), Discretionary (-2.6%), and Tech (-1.6%), with the latter doing the worst damage to the broader index on a weighted basis.
  • While valuations have improved, with the Fed still to tighten further, and uncertainty on how consumers will react to a tighter monetary backdrop, earnings uncertainty will weigh on sentiment and risk appetite.  Be that as it may, this from Bloomberg suggests the ‘dumb’ money is piling in, while the ‘smart’ money is exiting stage left…”stocks keep falling, and retail investors keep buying….individual investors were among the biggest buyers of equities last week, when the S&P 500 dropped another 3.0%, bringing declines for the year to almost 20.0%. Meanwhile, hedge funds were selling, according to the latest data from Bank of America. Tech and consumer discretionary saw the biggest inflows from retail investors.  Separate data from research firm Vanda also show that individual investors continued to buy the dip in stocks in recent days, with the most aggressive buyers resorting to margin trading or leveraged ETFs to make up for YTD losses. Retail investors may be getting hit harder than indexes would imply: A Goldman Sachs basket of U.S. stocks that are most popular among retail brokerage platforms collapsed 38% this year vs 18% for the S&P 500.
  • Local Stocks – modest losses in the local index yesterday with the ASX 200 closing -0.3% lower.  While losses were modest, they were broad with 72% of the index retreating and only two sectors able to advance: Financials (+0.3%) and REITS (+0.4%). Tech (-3.0%) took the brunt of investor caution, followed by Telcos (-1.9%) and Utilities (-1.2%).  The ASX 200 is +2.7% of month to date lows, but there is little conviction in either direction.  Forward PE’s are at 14.7x, well below pre-pandemic averages of 16.1x, but still not cheap enough for mine given all the uncertainty around monetary policy and what tightening will do to growth expectations and earnings.  Futures are up a smidge, +0.1%.


  • ASX 200 Relative Strength Indicators

Source: Bloomberg


  • Offshore credit – two issuers were on the runway, ready to press play on the Kenny Loggins CD and blast off into the danger-zone.  However, both put the cue back in the rack given market volatility.  Secondary spreads were mixed, with US IG indices a basis point or two tighter, while in EU IG indices spread drifted in the opposite direction.  Similar themes in CDS, EU based indices were wider, so MAIN (+1.6 bps), Senior Fins (+1.8 bps) and Sub Fins (+4.1 bps), while CDX was -1.4 bps tighter.


  • Cumulative spread change from pre-pandemic to now…

Source: Bloomberg, Mutual Limited


  • Local Credit – traders…”a reasonably busy day with some evidence of the risk on tone seen overnight pervading local markets. Possibly the busiest we have been in Corporates for a number of weeks with the success of the AIR NZ deal bringing a number of investors back to some of the more maligned co sectors.”  One of the outtakes from the KangaNews DCM conference in Sydney on Monday was the widely held view that spreads had either peaked, or were close to peaking and as such offered value.  Eventually that view is going to be backed up by actual buying.  Whether the improved tone yesterday is sustained remains to be seen, but it’s a start.
  • In the financials space, traders noted…”we closed the curve unchanged as we consolidate at prevailing levels. We saw some decent buying of 5-year FRNs away from us (we don’t own the inventory) which may help cap the topside in the low 100s. Shorter tenors remain heavy but at these levels we are not seeing any selling from balance sheet type accounts with most happy to hold. Hard to see spreads moving much either way at this point, with the possibility that forthcoming ADI issuance imparts modest widening pressure.”   While the senior curve closed unchanged, tier 2 spreads were marked wider (+2 – 4 bps).  CBA’s Apr-27 is at +215 bps, while the 2026 calls are at +200 – 205 bps and the 2025 calls at +188 – 190 bps.  Flows remain light despite apparent value at these levels.


  • Major bank 5-year senior…

Source: Bloomberg, Mutual Limited


  • Bonds & Rates – nothing really to talk about, in bonds at least, with little movement in yields on the day.  Swap rates were busy, dropping 9 – 12 bps across the curve.  ACGB’s will likely catch a strong bid today on the back of moves observed in US markets.  “Some bond market veterans see signs it’s safe to start buying again, though few are eager to call the bottom. At BlackRock, funds have “added a little more interest-rate exposure in recent weeks,” said Rick Rieder. “A lot of bad news is priced in,” David Giroux at T. Rowe Price said. The 10-year Treasury yield has dropped in recent weeks, away from a threshold of 3.25% that’s capped the note since 2011.” (Bloomberg).  These themes are applicable to local bonds and support our view of the past few weeks that ACGB 10-years had overshot the runway…yields have since fallen ↓25 bps.


  • ACGB 10-Year…most aggressive sell-off in recent history…

Source: Bloomberg, Mutual Limited


  • RBA rate hike pricing…

Source: Bloomberg, Mutual Limited


  • A$ Fixed Income Markets…

Source: Bloomberg


  • Macro – “The major set of data releases was the PMIs across Germany, the Eurozone, UK and the US.  The much softer than expected UK Services PMI contributed to the decline in Gilt yields, although all of the PMI prints undershot expectations to some extent.  Contributing to the decline in Treasury yields was a precipitous drop in new home sales, dramatically undershooting expectations and joining a host of other weak signs for the US housing market.” (NAB)
  • And for the day ahead…” RBA Assistant Governor Luci Ellis speaks this morning on ‘Housing in the Endemic Phase.’  In Australia we get construction work done for Q1 (NAB looks for a stronger than market 3.0% qoq print). The RBNZ meets and is expected by both our BNZ colleagues and the market to lift the OCR by 50bp to 2.0%. Overnight the Fed releases the May meeting minutes, and ECB President Lagarde is speaking in Davos.” (NAB).  Also, “Housing will be in focus today.  We estimate Australian construction work done increased by 1%/qtr in Q1 2022 (in line with consensus).  Bad weather and supply constraints are a headwind for the sector despite strong demand.” (CBA)


  • Charts:




Source: Bloomberg, Mutual Limited


Click here 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: 0.50%
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%