Charlie Jamieson: Bond market pricing in ”extraordinary” rate hikes

The RBA lifted the cash rate yesterday by 25 basis points, to 0.35%. And just like that, its war on inflation - which it will wage against aggregate demand - is underway. 

The threat of inflation has been written on the wall for some time, though, prompting some to wonder if the central bank has dropped the ball. Today's guest, Charlie Jamieson, co-founder of Jamieson Coote Bonds, questions whether the RBA ever had the ball in the first place, having stated as early as last year that it didn't expect to lift rates for three years.

"It was absurd to think we'd be in 0.10% settings until 2024," says Jamieson. 

The hikes will now come thick and fast, if bond market prognostications are anything to go by. 

"The bond market is pricing the RBA to hike rates higher than the US Federal Reserve... that's extraordinary."

In today's episode, Charlie rates the RBA’s handling of the inflation (and he doesn’t mince his words), how bonds will perform in light of it, and pulls back the curtain on bond portfolio construction - namely, which bonds to include and when. 

1:26 - Did you expect inflation to be that high?

5:05 - Has the RBA dropped the ball?

12:35 - How culpable are central banks for inflation?

20:40 - The yield curve inversion - trajectory for rates?

28:30 - How possible is it for credit markets to freeze up?

31:50 - Bond return expectations

37:15 - How do you balance the duration as rates and expectation change?

41:45 - Active vs passive bond funds?

45:00 - Absolute return vs index bond funds

48:00 - How bad will it get?

50:55 - 3 questions