Australian Bond Exchange

Australian Bond Exchange Weekly Update

13th September 2024  

Global Cash Rates & Inflation 

  • The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year to July is 3.5%.
  • The US cash rate (policy rate) is currently between 5.25%-5.5%pa and the annual inflation rate in the year to August is 2.5%.
  • The Bank of England Bank Rate currently sits at 5.0%pa to fight an inflation rate of 2.2% in the year to July
  • The European Central Bank Cash Rate (deposit facility) is 3.75%pa, to fight an annual inflation rate of 2.2% in the year to August.

U.S. Inflation Slides Lower Again

Inflation in the world’s largest economy continues to ease, mirroring a global trend, and paving the way for a potential Federal Reserve rate cut in September. The CPI index dropped for the fifth consecutive month to 2.5% in August, marking its lowest point in over three years. 

A 25-basis point cut to the Federal Funds rate is now widely anticipated. If implemented, it would be the first U.S. rate reduction since March 2020, following in the footsteps of the European Central Bank (which cut rates again this week), the Bank of England, the Bank of Canada, and several others. 

European Central Bank Cuts  

Inflation also continues to moderate across the Euro Area which has prompted the European Central Bank (ECB) to slash its key interest rates once again.  

Inflation fell to 2.2% in August, the lowest level since 2021, while economic growth remains weak overall, with GDP increasing by a minor 0.2% in the second quarter of 2024. 

Weak Australian Business Conditions Remain

Both business conditions and confidence in Australia fell sharply in August, highlighting the continued challenges and uncertainty facing the business sector. 

Retail and manufacturing sectors are experiencing the greatest impact, while construction and wholesale trade also remain under significant pressure. 

Although an immediate rate cut from the Reserve Bank of Australia appears unlikely, this data further confirms the ongoing slowdown and deterioration in economic and business conditions.  

Tier 1 Bank Hybrids Vanquished 

APRA, Australia’s prudential regulator, has announced plans to phase out Tier 1 bank hybrid securities, with the regulator highlighting increased risks to retail investors who may not fully understand the complexities of the products.

Tier 1 bank hybrids combine features of both debt and equity, can be highly volatile, and can in certain cases can be converted into equity or written off entirely during financial distress.

This underscores a key difference between bank hybrids and corporate bonds and other fixed-income securities, which do not have an equity component, making their returns and risk more predictable.

For more information about our available fixed-income securities, contact the Australian Bond Exchange today.

Week Ahead

  • Federal Reserve interest rate decision
  • Bank of England interest rate decision
  • Bank of Japan interest rate decision

*Data accurate as at 13.09.2024

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