With the consensus slowly but surely shifting to expect rate hikes from the RBA, it's worth thinking about the impact of RBA hiking cycles on asset markets.  One asset class we recently looked at is Australian credit spreads - we took a look at a few different drivers, and the RBA cash rate is an important one.  While the sample size is small, the pattern is that a series of rate hikes will ultimately lead to a widening of credit spreads (bad for corporate bonds).


While not many people are picking an overly aggressive hiking cycle by the RBA, and most say sometime next year for the first hike, there has been a series of out of cycle hikes in mortgage rates, and debt loads remain high.  Thus it's entirely possible that credit spreads may widen earlier in the rate hiking cycle this time around.  So while interest rates are just one of the many factors you need to think about for credit spreads, it is one to keep in mind.


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Bruce Aulabaugh

Could it actually be the other way around?: Credit markets anticipating trouble in advance (spreads widening in 2008) but RBA rate hikes extended too long then playing catch up (rates falling 2009). I'm not sure the interpretation of the relationship as given in this article is credible.