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Mutual Daily Mutterings

Quote of the day…

”The death of one man is a tragedy.  The death of millions is a statistic”… Josef Stalin










“Trump, you idiot…!”





Overview…”the world is really @#$%# up at the moment…”


  • Moves: risk mixed…stocks ↓ then ↑, bond yields ↓, credit spreads ↑, volatility ↑and oil ↑….


  • It’s official, the Russians have invaded Ukraine, and not just the newly ‘recognised’ separatist regions, but all over with the capital Kyiv bombed.  The Russians have captured Chernobyl, which is a worry…some suggesting it’s a threat to ensure the rest of Europe remains compliant.  China blamed the US for hyping the prospect of war, which is like accusing someone of head-butting your fist after socking them on the nose!
  • European stocks puked themselves, down as much as -4.0%.  US markets opened weaker initially, but the tone turned positive after Biden announced more sanctions, mainly targeting Russia’s banks.  The S&P 500 and NASDAQ (and DOW) closed stronger in the end…markets are punting on a brief war.


  • In early offshore trading treasury yields had plunged -13 bps, at least, across both 2s and 10s, but as I type the rally yields is back to just -3 bps.  European bonds (10Y) were a touch friskier with OATS -7 bps lower and BUNDS -6 bps.  ACGB’s yesterday rallied strongly.


  • Talking heads…“Russia invading Ukraine has added to an already tense year, with investors selling first and asking questions later…but it is important to know that past major geopolitical events were usually short-term market issues, especially if the economy was on solid footing.” Agreed, and again, as harsh and cold as this sounds, Ukraine will be page 5 news before long, part of the background noise as investor attention is diverted to the next new shiny bauble of news or data.  Short of the US and NATO allies sending in the troops, the conflict’s influence on markets is likely already waning.


  • Crude oil spiked to a drop under $106/bbl, but eased back over the latter half of the offshore trading session.  Crude is now sub-$99/bbl, still elevated and hovering around levels not seen since 2014, adding further upward pressure on inflation.   That’s a +338% increase since the start of the pandemic.  The US government announced they would release more strategic oil as conditions warrant.


  • Fed speak…despite the conflict, Cleveland Fed President Mester said overnight a rate hike in March remains appropriate, barring an unexpected turn.



The Long Story….


  • Offshore Stocks – an interesting day to day the least.  European markets understandably were smoked as the Russian dogs of war were unleased across Ukraine…apologies for the hyperbole.  US markets opened similarly, on the back foot from the get-go, but then reversed course after President Biden went public with harsher sanctions on Russia.  He waggled not one finger, but two.  That’ll scare ‘em.  By days end, a smidge over a third of the S&P 500 had retreated, so that’s a solid almost two-thirds advancing on a day when most risk markets were in the doldrums.  The broader index rose from -2.7% down intra-day to close up +1.5%.  Cray-cray.  Tech (+3.5%) led the intra-day recovery, followed by Telcos (+3.1%) and Discretionary (+2.5%).  Staples (-1.7%) suffered most, followed by Financials (-1.5%) and Energy (-1.3%), somewhat surprisingly on the latter given oil prices.


  • Talking heads…“many traders today are comparing this to the first Gulf War, when risk-taking rallied back soon after the fighting began.  The hope is for a quick stabilization of financial markets, with one trader telling me this could be over by the weekend.  As a result, risk rallied as President Biden addressed the press outlining sanctions but not going as far as some thought he would by sanctioning Putin directly, for example, or denying Russia access to the Swift electronic-payment system.  But the truth is that markets do not know how to price war and where markets go from here is a coin toss. Traders tell me the risk being added today is incremental.  No one seems willing to go out on a limb.


  • Local Stocks – belted…the ASX 200 stumbled yesterday, falling below 7,000 intra-day as the situation in Ukraine deteriorated.  Not surprising, on Russia’s actions, but I guess there is always hope that common sense respect of sovereignty would prevail.  No sector spared the rod with nine-in-ten stocks retreating.  By day’s end the ASX 200 had dusted -3.0%.  Tech (-6.4%), Materials (-4.3%) and Discretionary (-3.7%) were all taken behind the woodshed for a “trousers-down-six-of-the-best” thrashing.  In addition to Materials, Financials (-2.8%) did the bulk of damage to the broader index.  The least-worst sectors were Utilities (-0.8%), Staples (-1.0%) and Healthcare (-1.6%).  With the sharp intra-day turn around in US stocks, ASX 200 futures are flashing a flashy and sparkly green, +1.1%



  • Offshore credit – wider again in offshore cash markets with US IG +4 bps wider, while EU IG closed +10 bps wider on average.  EU IG Financials are now +39 bps wider YTD, representing an 81% widening.  US IG Fins are +36 bps, or +41% wider.  For local context, we’re +3 bps or +5% – 7% wider. CDS followed the lead of stocks with the MAIN (EU) +4 bps wider, while CDX (US) actually fell a basis point.  EU Financials Senior CDS were +3.5 bps higher, while EU Financials Subordinated closed +6.5 bps higher.  Primary looks to have dried up for obvious reasons.


  • Local Credit – traders intra-day comments…”as Russia/Ukraine situation worsens, Aussie credit spreads remain fairly stable. Major Bank senior debt +1-2bps wider, and we expect this paper to outperform into any further risk off.  SSA’s a touch weaker but holding in well considering, corporates will be wider again.”  End of day comments…”a grave day as Putin launched a broad based attack on Ukraine, sparking military conflict between the two nations. Global markets turned to strong risk off, driven by a steady stream of headlines… secondary flow was extremely thin, with liquidity having all but disappeared by mid-afternoon.”  Major bank senior spreads ‘gapped’ wider, +2 bps across the 4Y and 5Y part of the curve to +62 bps and +72 bps respectively, while the 1Y – 3Y part of the curve was only +1 bp wide at +20 bps up to +47 bps.  The higher beta tier 2 space was a little more vigorous in its widening moves, +3 bps across the curve.  The 2026 callables are at +149 – 153 bps, the 2025’s at +137 – 138 bps.  At some stage, perhaps not today, but shortly, I’d say there will be some good buying opportunities around for those brave enough to add risk before the smoke settles.  Synthetics gapped wider with iTraxx +5.5 bps to 90 bps, seven-month highs.


Source: Bloomberg, Mutual Limited


  • Bonds & Rates “the haven status of global bond markets is wobbling even in the face of increased Ukraine tensions.  Yields pushed higher yesterday across multiple markets despite some weakness in global stocks.  But the very nature of the geopolitical situation makes even relying on Treasuries — the traditional safe haven asset — a tricky call at the moment.  The obvious market risk from an escalating conflict is a further spike in commodity prices — exacerbating the rise in inflation at the very moment it is most feared. That increases the pressure on central bankers to act and acts as an anchor on bonds.” (Bloomberg).  A strong rally in local bonds yesterday, which may see some modest follow through today, but with US treasuries easing back on their rally, any moves today could be muted.  A brave punter might be inclined to take the opportunity to load up on shorts…a sensible and prudent punter might leave the crash-helmet on and keep their head well below the parapet!


  • Overnight US treasuries (10Y) hit intra-day lows of 1.85%, down -13 bps at the time as Russian tanks rolled across the Ukrainian border.  The fact that Biden didn’t go all in on the sanctions front seemed to appease market risk appetite and the rally abated.  Fed speak…”official speakers in the US, including regional Fed Presidents Mester, Bostic, and Barker all said that the Ukrainian situation warranted close observation but that an initial tightening of policy in March was still necessary.  A 25bp move remains fully priced, but the odds of anything larger continue to fade.  The ECB’s greater proximity to the situation leaves them more cautious: Governing Council member Holzmann said of tightening that “the speed may be somewhat delayed”.  ECB President Lagarde is speaking tonight.” (NAB)



  • Macro – unsurprisingly, the few data releases didn’t attract significant attention.  .


  • Some comments from CBA…”with focus on the Russia Ukraine war and the resulting economic spill overs, we doubt today’s US January PCE deflator will materially impact market pricing for FOMC tightening and the USD (12:30am Sydney time).  US interest rate markets are currently expecting ‘only’ a 10% chance of a +50 bp increase in the Funds rate in March, compared to nearly 100% following the US January CPI print.  Cleveland Fed’s Loretta Mester said the Russia Ukraine situation will be a consideration in monetary policy.  Mester said she still supports the start of interest rate tightening cycle in March, barring an ‘unexpected turn in the economy’.









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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: 0.31%
MIF – Mutual Income Fund
Gross running yield: 1.37%
Yield to maturity: 1.00%
MCF – Mutual Credit Fund
Gross running yield: 2.73%
Yield to maturity: 1.90%
MHYF – Mutual High Yield Fund
Gross running yield: 5.04%
Yield to maturity: 4.23%