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DIRECTORS : CHRIS BURRELL ROGER BURREL ( Acting Chairman ) IAN DAVEY ROBERT CHAN ELAINE ANDERSON ALICIA KENDALL MARI ASHTED

ASSOCIATE DIRECTORS : LYNDA MYERS MICHAEL BURRELL

ASSOCIATES : JAMIE ELGAR ERIC HARRISON DYLAN KATZER BRUCE McLEARY SHAUN MINAHAN

SENIOR INDEPENDENT DIRECTOR : GREG VICKERY AO email : clientcare @ burrell . com . au internet : www . burrell . com . au

Although some countries , especially among the emerging markets , are still experiencing surges of new COVID-19 cases , the global economy has been overall recovering strongly from the pandemic . The business outlook in many economies is currently robust , providing ongoing solid fundamental support for growth assets , with investors currently focused in particular on the more cyclically sensitive sectors in countries that have managed the pandemic relatively well . Bonds , however , have been weak , and are likely to continue to face challenges if inflation moves higher .

The prospect of interest rates having to rise to compensate for higher inflation has shaken equity markets in recent weeks and may well re-emerge as an issue as the year progresses . While there have been further sporadic outbreaks of COVID-19 , Australia is otherwise in a strong cyclical upswing and has been helped by high commodity export prices . Business and consumer surveys are pointing to strong growth ahead . An unexpectedly expansionary budget on May 11 has added to the strength of the post-COVID-19 recovery .

Short-term interest rates have remained steady , with the 90-day bank bill yield continuing to trade just above zero and bond yields have mirrored the US market .

When last heard from , at its May 7 statement on monetary policy , the RBA said that

“ It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range . For this to

MAY , 2021 occur , the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently . This is unlikely to be until 2024 at the earliest ”.

But the RBA is in the same situation as many overseas central banks . With a stronger and faster recovery from COVID-19 than originally expected , the likelihood is that the 2024 time frame has come a bit closer . Like its overseas counterparts , the RBA will not be doing anything in the near term , and cash rates will remain very low for some time , but an eventual move towards less stimulus is becoming a bigger object on the horizon . The futures market is currently anticipating an increase in the target cash rate in late 2022 .

Local bond yields have tracked US bond yields upwards this year , and local bond investors have felt the pain . It is likely to remain a challenging environment , as further increases in US yields look likely as they rise to compensate for an expected rise in domestic inflation . Westpac Bank , for example , sees our local 10-year yield at 2.3 % by the middle of next year , and it could go higher again : National Australia Bank expects that the 10-year US yield will have risen to 2.5 %, and the local equivalent will have matched it . Whatever the decimal point turns out to be , a robust domestic economic cycle is not a helpful backdrop for bond performance .

On the other hand , the current cycle looks to be helpful for the Aussie dollar . Ongoing recovery from COVID-

Participant of ASX Group and NSX ABN 82 088 958 481 ASFL No 247431