- The yield trade is expected to support the banking sector as interest rates remain low. Prospective yield alone should support the Big Four at current share prices.
- With benign bad debts, net interest margin (NIM) maintained, falling wholesale funding costs and quantified regulatory capital risk, the sector now looks primed for total return outperformance.
- This means an upgrade for the sector as a whole and a buy for ANZ and Westpac.
The stunning moves down we have seen in global and domestic yield curves, combined with record low 10-year bond yields and collapsing commodity prices, suggests we are entering a period of low inflation, low GDP growth and ultra-low cash rates.