APRA have recently released two papers that refer to the rise in private residential lending growth in the September quarter.
System Risk Outlook – November 2025 | APRA
APRA to limit high debt-to-income home loans to constrain riskier lending | APRA
The October Private Credit growth released last week showed another increase from the September quarter.
APRA in their System Risk Outlook referred to the Household Debt to Income ratio for what think is the very first time. This snippet is taken from that report.
We have been pointing out that Australia has the highest household debt to income ratio in the history of the Western Developed world for what seems like a very long time. Such a high debt level has been possible only because Australia has managed to avoid a recession since 1991 (when the Basel capital adequacy requirements were first introduced). Should an economic contraction commence then it is highly likely that Australia will enter a prolonged period of mild economic contraction because it will take households a long time to pay down this debt. This is something that the IMF has warned about with reference to Australia for quite some time.
Inflation is the rolling stone that actually gathers moss!
Inflation is back! Perhaps it never left?
The discussion has turned from denial to fear almost overnight, but for us the signs were self-evident that the RBA should not having been cutting rates at all in 2025. Even the RBA itself has issued a carefully crafted speech by Deputy Governor Hauser that lays out the reasons why rate cuts should not have occurred. Taking each of his points in turn then.
It is absurd to point out that other central banks were cutting rates in 2024 as a reason for Australia to also cut rates. The RBA never achieved any period of negative money supply growth like what both the US Federal Reserve and the ECB achieved.
Monetary Theory
- MV = PQ
- Where:
- M – Broad money growth
- V – Money velocity
- P – Prices
- Q – Quantity produced
The central bank through its open market trading, using the exchange settlement account to buy and sell repo eligible bonds with the banking system, controls the rate of paper money creation or what is termed money growth (M). The central bank does not control systemically the behaviour of the real economy (PQ) and leave the output and employment outcomes to market forces.
The RBA began cutting rates in February – well before the Trump Liberation Day Tariff announcements that Hauser claims was thought likely to slow global GDP growth and demand for Australian commodities. The rate cutting began when the unemployment rate was still well within the 4.25-4.75% range that is considered Full Employment in Australia. In previous cycles the RBA (or any central bank) only began to cut rates AFTER unemployment had risen to create spare capacity in the economy so that the rate cuts that then spur growth did not increase inflation. It also needs to be appreciated that this outcome occurred AFTER the government had engaged a massive immigration program, increasing labour supply.
Interest Rates
An eerie calm settled over the US bond market last week during the shortened Thanksgiving session. Treasuries largely shrugged off the jump in Japanese yields: the 2-year finished flat at 3.51%, while the 10-year eased from 4.06% to 4.02%. A narrative has taken hold that the Treasury is deliberately “pinning” the 10-year around 4% by limiting issuance at that maturity. More plausibly, after the seizure of Russia’s SWIFT-held Treasury assets, offshore demand for US 2–10-year bonds has softened, pushing the Treasury to lean more heavily on bill issuance—paper the domestic banking system primarily uses for liquidity management
Following the surge of inflation in October the Aussie yield curve shifted upwards. The 2-year moved from 3.69% to 3.82% last week and the 10-year from 4.46 to 4.54%. The Aussie 10-year is now trading at 52 bp premium to the US 10-year, a premium we have not seen since June 2022 when a high spending socialist government was elected federally.
Major Credit Markets
A quieter week for corporate bond spreads with the US holiday, however the trend was for tighter spreads given the increasing probability of a December Fed rate cut and thirst for investment grade (IG) yield still strong. Last week we mentioned Oracle as a bellwether for the health of the tech sector bond given the recent huge bond raisings. We now add the Oracle CDS spread to the IG chart (Oracle is rated IG “BBB”). In the past week the heat seems to have gone out of this market, the Oracle CDS spread (blue in the chart) falling under 0.80%, nevertheless still way above the initial 0.40% level.
Investment-grade issuance in corporate subordinated bonds has surged over the past two months. Transgrid, and Dexus have each launched 30-year NC5.25 sub deals, attracting solid offshore demand from Asia and local wealth-broker channels, though professional fund managers have largely stayed away on liquidity concerns. Norfina (ANZ) issued a 5-year senior issue at 80bps—a healthy concession versus the secondary market, where major-bank senior paper is trading closer to 73bps.
High Yield Markets
High-yield (HY) credit had a solid week on falling rates and steady demand, with spreads still tight. The market is basically saying: growth is “good enough,” defaults stay low, and carry is king. The key near-term risk people flag is whether the AI capex/issuance wave ultimately widens spreads if leverage keeps climbing or if the Fed does not cut.
Hybrid margins widened over the week by on average 0.11%, some of which was catch up for a weak ASX in November despite last week the Top 200 index rising by 2.35% (nevertheless still down 3% for the month). Additionally, volumes were well above average which may have been selling to fund another recent ASX yield security, namely the Stonepeak $300m raise due to settle on December 4. Further, in the following week the $230m MA Financial bond settles as well as the $75m new CVC notes, although much of this volume was rolled from the current notes. As a result, the CVCHA units are to be redeemed early on December 10 (rather March 2026) at 102% of face value.
Listed Hybrids and Debt
Hybrids – November eventful
November saw hybrid margins lift off their historical lows. The average major-bank hybrid margin bottomed at 1.71% on 8 October, edged to 1.77% by month-end, and finished 30 November at 1.96%—a 19bp rise over the month, equivalent to roughly $0.77 of price impact on a five-year hybrid.
Three forces drove the widening. Firstly, supply funding: November settlements for RAMHA, AYUPA, an MA1 raising, and some early-December deals pushed matched volumes about 20–30% above normal, weighing on prices. Secondly, risk repricing: equity volatility picked up, with the MOVE and VIX jumping and Australian iTraxx widening mid-month before easing late; the average hybrid margin relative to iTraxx is now back in line with its post-October-2021 average. Thirdly, weaker bank equities: despite recent highs and solid quarterly prints, CBA fell 11.15% in November, and each after dividends, ANZ slipped 3.77%, NAB minus 6.19%, and Westpac was flat (+0.08%).
Away from broader risk, issuer-specific moves also mattered. Macquarie surprised the market by effectively extending redemption expectations: MBLPC had been priced for repayment in December 2025, but a brief note in Macquarie’s 7 November trading update wasn’t fully absorbed for weeks. With a 4.70% margin and hence strong carry out to December 2026, MBLPC had over $2 of capital repricing. By contrast, AMP confirmed the call of AMPPB, to be repaid on 16 December at $100 plus a final $1.85 distribution.
Forward Interest Indicators
Australian rates
Swap-rates rise with bond rates after rising CPI print.
Swap rates:
- 10-year swap 4.54%
- 7-year swap 4.36%
- 5-year swap 4.22%
- 1-month BBSW 3.55%
