The market is now expecting a greater chance of a cut by the RBA than a hike over the next year. At the same time the central bank has held firm in its bias to leave rates on hold. In this quarter’s update our Australian rates PM, Tim Hext, offers his views on the outlook for 2019 and what could move the dial. We also assess the prospects for the local credit market, where macro risks have weighed on investor appetite and liquidity has become increasingly scarce. Meanwhile in cash markets, funding cost increases have fuelled out-of-cycle mortgage rate hikes. Our Cash PM, Steve Campbell takes a deeper dive into the causes and also examines issues in the RMBS market. Finally, we discuss new developments in the ESG arena including NSW TCorp’s first green bond issuance.

We hope you find the piece useful and welcome feedback from readers.

 

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This case study on Pendal’s credit risk assessment based on ESG factors was published by the PRI — the world’s leading proponent of responsible investment — as part of their ESG in credit ratings initiative which aims to enhance the transparent and systematic integration of ESG factors in credit risk analysis.

In this case study, George Bishay, Portfolio Manager of the Pendal Sustainable Australian Fixed Interest Fund, shares his insights into the rationale for limiting exposure to credit issued by Coca Cola Amatil. The decision reflects long-held concerns over the social risks associated with high sugar and the consequences of structural shifts in consumer behaviours. This case study provides a timely illustration of the impact on corporate profitability from non-financial considerations and the value that can be added through integration of ESG assessments in credit analysis.

 

 Click here to view the case study.

 

This case study is included in Appendix 2 (pages 56-57) of the ‘Shifting Perceptions: ESG credit risk and ratings‘ report which explores the disconnects encountered when integrating non-financial risk assessments. The report delves into PRI’s findings on the challenges encountered by credit practitioners in integrating ESG-related risks, together with practice guidance on the implementation of risk assessments and engagement with credit ratings agencies.