Markets Overview

  • ASX SPI 200 futures down 0.8% to 7,830.00
  • Dow Average down 1.1% to 38,461.51
  • Aussie down 1.8% to 0.6512 per US$
  • US 10-year yield rose 18.0bps to 4.5415%
  • Australia 3-year bond yield fell 2.9 bps to 3.70%
  • Australia 10-year bond yield fell 5.5 bps to 4.12%
  • Gold spot down 0.8% to $2,333.09
  • Brent futures up 1.2% to $90.53/bbl

Economic Events

  • 09:00: (AU) March CBA Household Spending MoM, prior -0.3%
  • 09:00: (AU) March CBA Household Spending YoY, prior 3.5%
  • 10:30: (AU) Australia to Sell A$1 Billion 91-Day Bills
  • 10:30: (AU) Australia to Sell A$1 Billion 133-Day Bills
  • 11:00: (AU) April Consumer Inflation Expectation, prior 4.3%

Wall Street traders sent stocks and bonds sliding after another hot inflation report signaled the Federal Reserve will be in no rush to cut rates this year. Oil climbed as geopolitical jitters resurfaced.

Equities extended their April losses, with the S&P 500 down about 1% as the consumer price index beat forecasts for a third month. In a hawkish reprice of the Treasury curve, 10-year yields topped 4.5% and Fed swaps are now showing bets on only two rate cuts for 2024. A sharp reversal in oil also weighed on sentiment, with Bloomberg News reporting the US and its allies believe major missile or drone strikes by Iran or its proxies on Israel are imminent.

As the Fed rides the “last mile” toward its 2% inflation goal, the concern is that price pressures may not be just a “bump in the road” — with the higher-for-longer rate narrative taking hold. Minutes of the last Fed meeting showed “almost all” officials judged it would be appropriate to pivot “at some point” this year. But inflation since then has upended market bets.

The Fed minutes also showed policymakers “generally favored” slowing the pace at which they’re shrinking the asset portfolio by roughly half.

The S&P 500 dropped to around 5,160. US two-year yields surged 23 basis points to 4.97%. The dollar jumped the most since January. A weak $39 billion sale of 10-year bonds also boosted yields. Brent crude topped $90.

Other News

Australia will begin marketing its first-ever green bond issuance today as a swath of sovereign issuance narrows the premiums investors pay to hold sustainable debt.

The nation’s government will seek to issue around A$7 billion worth of green bonds maturing in June 2034, according to a presentation released Wednesday. The first bond will be syndicated after officials have completed roadshows in Australia, Asia and Europe. Other maturities will be issued over time.

Australia is joining a host of sovereigns tapping sustainable finance markets in a bid for cheaper funding costs through the so-called greenium, or premium to hold green debt. The yield on the nation’s benchmark 10-year note has jumped more than 90 basis points the past year, the second most in the developed world, according to data compiled by Bloomberg.

Greeniums however are starting to erode after sovereigns made up 40% of a record $187.7 billion in green issuance last quarter. In New Zealand, “it’s hard to discern if its 10-year green bond has any premium priced, while UK, Canada, and Germany have modest greeniums at best,” said Martin Whetton, head of markets strategy at Westpac Banking Corp. in Sydney.

Australian issuance may be similar as few investors don’t already have exposure to its sovereign debt, Whetton wrote in a note to clients. Fair value could be as little as 0.5 basis points, he added.

Proceeds of the green bonds will be used to accelerate energy transition including hydro-power and marine renewable energy, the government said.

Some investors may be hesitant to buy the debt given the nation remains among the highest per-capita carbon emitters in the world. Australia’s emission reduction policies and national targets are “insufficient” in meeting its Paris Agreement obligations, according to Climate Action Tracker.

Investor interest will depend on further details on the use of proceeds, according to Philip McNicholas, Asia sovereign strategist at Robeco. For now, the bond is likely to be supported as its structure looks in line with international norms, he said.

(Bloomberg)