The Australian dollar hung on at the lows last night by its finger nails as crashing yield spreads to the US mount unceasing pressure upon the currency. Just days after the 2 year yield spread flipped negative, the 5 year has followed and the 10 year is crashing as well:
The 2 year is now -4bps and the 5 year -1bps. The 10 year is still 9bps positive. The last time the 5 year flipped negative was eighteen years ago and the Aussie dollar was at 57 cents.
And there is more to come. Markets are still mis-priced with Australian slope steeper than the US:
This despite clearly superior US growth and inflation prospects with:
- looming tax cuts;
- cheap energy and shale oil revival;
- hurricane reconstruction;
- strong asset markets;
- recovering housing markets;
- soaring consumer confidence, and
- solid output.
Versus Australia’s:
- falling and stalling house prices;
- downdraft in dwelling construction;
- sorry consumer and retail recession;
- energy shock;
- weak asset market;
- tax hikes and
- weak output.
That makes Australian bonds a buy with pretty much everything else Australian a sell, including the currency.
David Llewellyn-Smith is chief strategist at the MB Fund which is currently long local bonds and international equities that offer superior growth and benefit from a falling AUD so he is definitely talking his book.
Here’s the recent fund performance:
Source: Linear, Factset
The returns above include fees and trading costs on a $500,000 portfolio. Note that individual client performance will vary based on the amount invested, ethical overlays and the date of purchase. The benchmark returns do not include fees. October monthly returns are currently at 4.9% for international and 4.2% for local shares.
If the themes in this post and the fund interest you then register below and we’ll be in touch:
The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. The MB Fund is a partnership with Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.
