In a month with plenty of important economic data that will shape the path of monetary policy for 2025, it was, for the most part, overshadowed by trade news. It has been a rollercoaster ride trying to keep up to date with the news coming from the US on the tariff front. To summarise briefly, the US President announced a 25% tariff on goods from Canada and Mexico and 10% levies on Chinese goods. Quickly thereafter, it was announced that the tariffs on Mexico and Canada were to be delayed for one month. The levies on China still went ahead as planned, and in response, China announced retaliatory tariffs. Trump also said his administration will begin to consider imposing reciprocal tariffs, and is now looking to add new ones on cars and other goods. It remains to be seen whether these are being used as a negotiating tactic, but it is no doubt creating uncertainty in markets.
In Australia, the RBA cut the cash rate by 25bps. Even though there were arguments both for and against a reduction in rates, it seems the added political pressure and market pricing (where a move lower was all but locked in) in some way forced the RBA’s hand. They seemed to decide to acquiesce to expectations and deliver the rate cut now. Interestingly, the Governor was then very hawkish in her commentary, explicitly telling the market and the public that lowering rates another three times (as was expected) is too many. While there may be more to come in future, it will be up to the data to reveal the case for them.
In this edition, we added the Banco Santander S.A. 2031 Senior Non-Preferred fixed rate notes to both the retail menu and the Sample Portfolio.
Retail Sample Portfolio
The Sample Retail Portfolio is a balanced portfolio whereby we aim to weigh an appropriate level of risk and return. Overall, it remains more skewed towards preserving capital rather than chasing yield. It aims to have 20 positions. The running yield of the current Portfolio is around 5.41%*, and the Portfolio is an approximate $204k spend.
This month, one change was made, which was the addition of the aforementioned Banco Santander S.A. 2031 notes. We removed the ClearView Wealth 2025c Tier 2 notes, on account of its lower relative yield (by approximately 75bps) and approaching call date. We note that while there is no certainty that the ClearView notes will be called in November this year, there is general expectation that they will. The Santander notes are Senior Non-Preferred, which rank high in the capital structure and can generally only be written-off in the case of non-viability (once thresholds for going and gone concern have been reached).
The visible trend in bond yields continued in earnest this month, that being that they are lower on a relative basis compared to two-to-three years ago. Clearly, rate cuts and tightening credit spreads have offset credit risks and/or other uncertainties. But as noted above, global events are raising the spectre of the latter risks. The first two months of 2025 have already brought a new trade war and easing rate cut expectations. Undoubtedly there is plenty of uncertainty at present, though opportunities do exist for those that look for options in new areas and look past the short-term gyrations in the market.
The Sample Retail Portfolio, along with the full list of retail available bonds, can be found on the FIIG Website here.
*Please note the indicative yield shown is the expected yield to the assumed maturity/call dates of
the bonds included in the portfolio, based on swaps rates at the time of writing.