From Goldies:
Our Economic team’s views call for unprecedented policy divergence between the RBA (2 rate cuts) and the Fed (3 rate hikes) over the remainder of the year. Given these out-of-consensus views on rates, investors often ask how the long running ‘yield trade’ would react if such a scenario plays out.
Buy Income + Growth to navigate the uncharted waters of divergent monetary policy: The lack of an historical precedent makes it hard to draw firm conclusions, but if the Fed does raise 3x this year, this would come as a surprise to the market and would act to significantly increase long-term global interest rate expectations. This in turn would put pressure on the most interest rate sensitive sectors of the market (REITs, Infrastructure in particular). Banks could be significant loser sunder this scenario if global investors are all of a sudden willing to pay less for yield at the same time as lower Australian cash rates squeeze net interest margins, putting greater pressure on dividends (as the banks could find it more difficult to reprice term deposits at negative real rates). The significant widening of the yields on banks relative to other rate sensitive sectors suggests that some of this downside might now, however, be priced.
