Quantitative easing (QE) was first pioneered by the Bank of Japan (BoJ) way back in 2001, when it was employed as a stimulative economic policy, after the BoJ ran short-term rates down to zero. QE’s mechanism for stimulation is the purchase of debt securities by central banks (in the secondary market), causing the central bank’s…Read More
U.S. Federal Reserve chairman Jerome Powell loves an interest rate hike and is planning several of them. The recently-appointed Fed Chair is bullish on global economic health, stating that “the economy has strengthened” and in his view “inflation is moving up to target”. Direct statements like these from the moderate Republican have global markets pricing…Read More
As largely anticipated, the Federal Reserve two weeks ago raised US interest rates for the fourth time since the Global Financial Crisis (GFC). In addition to the rate hike, the Federal Open Market Committee (FOMC) also announced it “intends to gradually reduce the Federal Reserve’s securities holdings by decreasing its reinvestment in the System Open…Read More
Following the surprise election of Donald Trump as the next President of the United States, bond markets around the world have been sent into chaos. With many of Trump’s policies reflecting a pro-growth agenda, inflation expectations (a primary driver of long term interest rates) has surged taking both the Australian and US 10-Year government bond…Read More
In December 2014, the Australian Prudential Regulation Authority (APRA) wrote to all Australian Deposit-Taking Institutions (ADIs) stating that mortgages should be stress tested under the scenario that interest rates rise at least 2% above current loan rates, setting the minimum rate (floor) at 7%. This suggestion highlighted that serviceability tests should be calibrated at an…Read More
Following two cuts to the cash rate in May and August, the 10-Year government bond yield progressively decreased for the most part of 2016 as interest rates around the globe reached record lows. However, in the past few weeks, the 10-Year bond has risen in yield significantly from a low of 1.819% at the start…Read More
During the September quarter, the listed interest rate security market performed strongly with credit spreads across most securities tightening as investors continued to seek higher yielding investments against the backdrop of a low interest rate environment. Securities received a boost in August as the Reserve Bank of Australia (RBA) reduced the official cash rate from…Read More
It has now been over nine years since the U.S. Federal (Fed) Reserve started to ease monetary policy in June 2007 in response to a slowing US economy and the unravelling of the US subprime housing loan market that eventually led to a global credit squeeze and financial contagion. During this period of distress central…Read More
Over the past week Australian government bonds have sold off which was led by overseas markets. In this article we analyse the events that have led to this and the wider implications at play for Australian bond market returns over the next 12 months. While markets have been waiting since mid-2014 for the US Federal…Read More
No major change to interest rate expectations last week but interest rate markets across the globe remain very sensitive to data releases. This week we expect to get some insight into US interest rate policy as July minutes are released but US interest rate futures markets remain skeptical of any increase in 2016. Domestically the…Read More