We begin 2024 with Bond markets positioned for a quick pivot to lower rates, with the first cut by June and another 1-2 cuts by the end of the year. However, high immigration is driving rents higher, services inflation remains too high, and under pressure workers are seeking higher wages, all of which could lead to sticky inflation numbers.

Ultimately, the RBA’s primary measure of success is controlling inflation to the mid-point of their 2%-3% target range, not facilitating economic growth. It would like to have both but will always choose price stability in favour of economic growth. This poses a medium-term risk for an Australian economy where households are already struggling.

Under these conditions we maintain a cautious approach to risk and prefer higher-quality credit securities with the economic backdrop of lower growth and heightened household stress.

To read our in-depth report, click on the following link: https://bit.ly/2024BondsOutlook