The market is wrong on rates says Milne, so here's what she's buying

Interest rates have been a hot topic so far in 2026, with the Reserve Bank delivering increases at all three of its meetings this year.

However, the spread between the two-year Australian Government Bond and the RBA cash rate has started to compress, which Wilson Asset Management Deputy Portfolio Manager Anna Milne says indicates an easing of the rate hike cycle.

Equity markets have yet to catch up.

In this Q&A, Milne shares how this mispricing is impacting WAM’s investment approach, why the outlook for Australian banks has gotten tougher following the federal budget, and explains why the best thing any new investor can do is read broadly.

What’s your most recent investment and why?

We’re an active fund, so we are buying and selling daily. We have increased our conviction in the Real Estate sector, on the view that the rate hike cycle in Australia is paused for now, given the underlying weakness emerging in the Australian economy.

Which investment did you add to your watchlist this week?

ASX is on the watchlist, following its shock expense growth announcement last week. It is still likely too early to be a trade, and we would need more comfort that the earnings downgrade cycle has bottomed before investing. This is likely still a few months away with the new CEO not joining until September. It’s a shame given the top line has shown strong trends recently.

What is the most recent investment you have trimmed or sold and what drove this decision?

We have trimmed our Australian banks holdings. We believe the fundamental outlook is becoming incrementally tougher for them on multiple fronts, including slowing credit growth due to Federal Budget changes, declining house prices, and the subsequent fear of a bad debt cycle.

What’s your favourite chart or data point from this week?

This chart shows the spread between the two-year Australian Government Bond, and the RBA cash rate. When the two-year bond yield trades above the cash rate, markets are pricing in rate hikes. When it trades below, they are pricing in cuts. For most of 2025, the spread was negative; markets were firmly in the camp that the RBA would be cutting rates. 

That changed around October, when a string of stronger than expected economic data shifted sentiment and the RBA turned hawkish. The spread flipped positive, meaning markets began pricing in the possibility of rate hikes rather than cuts.

That hawkish repricing accelerated in late February, when the Middle East conflict drove a surge in oil prices and global inflation concerns. At its peak in March, the spread shows markets were pricing in close to three rate hikes. Since then, this spread has compressed right back. With the equity market narrative still focused on rate hikes, this feels like a notable equity market mispricing in our view.

What was your weekly high – a standout market moment or highlight?

Catching up with company management and investor relations teams is always a highlight. June is often a busy period to do this, before companies enter a blackout period in July as they prepare their financial results for release to the market in August. Given the turbulence of the last few months, it’s particularly important to gain an understanding of how companies are managing through a potentially weaker economic outlook and rising costs.

What was your weekly low – a market disappointment or challenge from the week?

It’s always going to be stock calls that haven’t gone our way. This market is not fundamental; it is moving on sentiment and flows. There is a lot of short-term noise and mispricing that may take a while to resolve.

What first drew you to markets or this sector and what continues to keep you inspired today?

Markets are the intersection of economics, accounting, current events, and psychology. Every day you are learning, and it’s a privilege to have a job where that is the case.

What’s one piece of advice you’d give to new investors?

The best advice I received when I started as a research analyst was to read broadly — different sources, different opinions, different incentives. Understanding why someone holds a view is just as important as the view itself. The good news is that books, articles, and podcasts are more accessible than ever. The hardest part is staying disciplined and making it a habit.

How do you unwind when you’re not thinking about the market?

Daily dog walks, which are also when I get through a lot of podcast content. This is Millie, she runs the house.

Rapid fire! 🔥

What is your favourite investing book?

Global Macro Trading by Greg Gliner.

What is your favourite investing or finance/markets related podcast?

NAB Morning Call by Phil Dobbie.

What’s the first thing you read each morning?

A couple of factual broker email summaries of overnight market moves.

What is your favourite restaurant?

I love a Friday night Uber Eats from Maya Da Dhaba in Redfern.

What’s something people are surprised to learn about you?

My favourite alternative asset class is vintage bags. I love learning the history behind different pieces, following trends and cycles, and finding opportunities to buy well enough that I can enjoy them for a while before selling them on.

Think there’s a better pick? Prove it. Share your rapid-fire book, podcast, and daily read in the comments.

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