In The AFR I submit that both Australian and US interest rates are far too low---as manifest in soaring core inflation in the US (printing well above the Fed's target at 2.3% year-on-year in January) and even stronger house price growth locally---and complement the likes of CBA, BankWest and AMP for unilaterally raising mortgage rates and taking some heat out of a residential property market massively over-stimulated by the RBA's rate cuts last year. The odds of an early Fed hike in March have jumped to 40% following the upside surprise in the latest US inflation numbers in January, which have hammered investors in fixed-rate as opposed to floating-rate debt instruments. Out-of-cycle rate hikes by Australia's major banks will help staunch the inevitable return on equity slide as APRA announced a few days ago that contrary to the widely held equity investor myth, the deleveraging (or capital raising) process must march on. And rightly so: CBA disclosed in its results this week that it remains more than 20 times leveraged its equity capital, which is mitigated only by the exceptional quality of its human capital. Free (VIEW LINK)
Christopher Joye is Co-Chief Investment Officer of Coolabah Capital Investments, which is a leading active credit manager that runs over $2.2 billion in short-term fixed-income strategies. He is also a Contributing Editor with The AFR.