Australia is more exposed than most to higher US interest rates
US benchmark bond yields hit 16-year highs last night and look set to stay higher for longer. This makes Australia vulnerable, in more ways than one.
“Higher for longer” sounds like a marketing slogan but it’s a reality that’s only now sinking in for global and Australian interest rate expectations — as the last 24 hours of sell-offs on financial markets rammed home.
A range of data implying inflationary pressures remain, which will require higher rates to quell, have come through and last night’s surprisingly strong US jobs report sparked a sell-off that saw benchmark US Treasury yields hit a 16 year high.
“Here in Australia, people were thinking interest rates were going to fall, maybe in the next few months, come off next year. But they’re not,” says Jefferies head of Australian equities and financial institution research Matthew Wilson.
The immediate flow on of the rate spike will be to further increase the growing pressure on bank liabilities — deposits and bank funding — but sustained higher rates eventually lead to credit problems in the broader economy.
