Simply speaking, rising bond yields are bad news for the Australian sharemarket. The local bourse is laden with bond proxy stocks that in recent years have benefited from yields near record lows. The seemingly endless prospect of monetary stimulus from central banks sent bond yields in parts of Europe and Japan to negative territory creating a wave of bond refugees into the sharemarket.
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It created a boom time for stocks with lower risk profiles. Real estate investment trusts (REITs), infrastructure, utilities, telcos and financials traded at lofty premiums to the market. In the past three years, the financials, REITs and utilities sectors more than doubled not on company performance, but on central bank stimulus, Schroeders head of Australian equities Martin Conlon said.
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Bond yields set to rise further "Bond yields are rising as policymakers, acknowledging that monetary policy has reached its limits, are turning to fiscal policy to prod economies," Mr Conlon said.
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Australian 10-year government bond yields have risen 80 per cent since August and they have further to go. While the spectacular surge in global bond yields since the election of populist Donald Trump, who bought with him the promise of aggressive fiscal stimulus translating to higher inflation and interest rates, has eased, the longer-term trend pointing to a decline in bonds is intact.
Oh Dear, I wonder if Sydneyite will still be buying the Dips
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
Deflationary for asset prices, inflationary for consumer prices.
"Consumer prices" is rather broad. The deflationary pressures on FMCG products across the globe is massive at the moment. U.S. and Japan have been ravaged and it's a completely new business model now. However, they have the economies of scale to make the adjustments, unlike here in high-cost-structure-stan where we're forced to keep service and product costs high. Deflationary adjustments in a similar fashion would be devastating for the economy. Our suburbanites need to be reamed as deep and as hard as possible.
Not so much in Australia. We have two or three of everything. Three supermarkets, three consumer electronics stores, two large general merchandisers, two booksellers (or is it only one now?).
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The deflationary pressures on FMCG products across the globe is massive at the moment. U.S. and Japan have been ravaged and it's a completely new business model now. However, they have the economies of scale to make the adjustments, unlike here in high-cost-structure-stan where we're forced to keep service and product costs high.
It's funny that people think they can stop this deflationary wave by voting to leave a customs union or for some idiot with the world's worst comb-over as their president. Insular Australians have been shielded somewhat from this by the tyranny of distance, transfer payment subsidies to certain industries, archaic protectionist regulation and brutal zoning laws to protect entrenched oligopolies against competition.
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Deflationary adjustments in a similar fashion would be devastating for the economy.
True, but the alternative would also be devastating for the economy. Australia is now little more than a petro-state, and look what deflationary pressures are doing to Saudi Arabia.
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Our suburbanites need to be reamed as deep and as hard as possible.
The Australian character is defined by masochism. The suburbanites feel better about themselves when they are being reamed. That's why they vote for it.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
Oh Dear, I wonder if Sydneyite will still be buying the Dips
Not really. Interest rates will rise as the economy gets better, which means higher sales and higher profits for many of the ASX listed companies, and that means higher dividends and share price growth.
Sydneyite is a pretty smart guy, he will do well in the share market by investing in quality stocks.
You on the other hand are just placing bets.
Take risks - if you win you will become wealthy, if you lose you will become wise
Not really. Interest rates will rise as the economy gets better, which means higher sales and higher profits for many of the ASX listed companies, and that means higher dividends and share price growth.
Sydneyite is a pretty smart guy, he will do well in the share market by investing in quality stocks.
You on the other hand are just placing bets.
Hmmm........Are you saying that as Interest Rates Rise and Mortgage Repayments Increase with it that Consumers will have more money to spend in the Economy?
Hmmm........Are you saying that as Interest Rates Rise and Mortgage Repayments Increase with it that Consumers will have more money to spend in the Economy?
In the normal course interest rates rise BECAUSE the economy is doing well. Central banks use interest rates to cool down the market.
You seem to think that central banks will raise rates simply because bond investors demand higher returns.
Bond investors would in fact have that effect on some countries, but not for Australia. The RBA doesn't care about what the bond investors want.
The reason Australian mortgage holders may suffer is not as simple as assuming domestic interest rates will follow US rates. That’s unlikely, at least in the short term, as the Reserve Bank of Australia (RBA) actually may be forced to cut again if the Australian economy slips.
Higher US interest rates will put downward pressure on the Australian dollar, which will be welcomed by companies that benefit from the lower currency, but those with stretched valuations are at risk, according to the co-founder of Sydney-based fund manager Eley Griffiths Group, Ben Griffiths.
Financial stocks – banks more than insurers – and real estate institute trusts traditionally have been the most sensitive to rate movements and will struggle to meet market expectations, he says.
Analysts at investment bank Morgan Stanley warn that the big four Australian banks may start raising interest rates on all home loans, not just the investment loans that all banks have started lifting.
They say the higher rates on investment loans will not be enough to protect the banks’ profit margins, so shareholders will win out over customers and home loan rates will inch up regardless of what the RBA does with official interest rates.
In many cases, the amount of money the banks lend to owner-occupiers is double that lent to investors.
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