Global bond markets have seen a “significant sell-off” since Donald Trump’s victory in the US election, driven by “the expectation that the Trump administration’s pro-growth agenda is inflationary” and the impact of this on interest rates.
“This in turn, has resulted in a surge in the 10-year US Treasury yield and the Australian 10-year government yield has followed suit,” said BondAdviser credit analyst Jack Pobjoy.
“Following the domestic yield curve steepening, CBA, Westpac, NAB and a number of smaller lenders have increased interest rates on mortgage products in recent weeks.”
Mr Pobjoy noted that while increased mortgage product interest rates will “improve the earnings outlook for banks”, a material increase in term deposit rates is unlikely until the RBA increases the cash rate.
“Given the current economic outlook and considerable amount of household debt in Australia, we do not expect this to occur anytime soon,” he said.
Interest rates appear to be at an “inflection point”, Mr Pobjoy said, and the inflationary impact of Mr Trump’s victory seems to suggest fiscal policy has become more appropriate for kickstarting the global economy than monetary policy, which “have had little impact on desired economic outcomes” recently.
“All of these factors add to the case that we may have reached the bottom of the interest rate cycle and for this reason, term deposit rates may have also bottomed,” he said.
“As a result, we believe the individual funding requirements of each bank will be the primary driver in determining term deposit rates in 2017.”
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