US rates may hit 5-5.5% danger zone, threatening Australian super
Bank of America's Mark Cabana warns US interest rates may need to rise to 5-5.5 per cent, risking Australian super returns.
Bank of America's head of interest rates strategy, Mark Cabana, recently visited Sydney. He wanted to warn Australian superannuation funds about dangers ahead.
Mark Cabana believes US interest rates are not yet high enough to slow economic growth. Cabana says rates may need to rise further to around 5 to 5.5 per cent to be strong enough.
At those levels, he expects to see tight financial conditions. Cabana also expects to see slowing economic growth.
Australian super funds hold tens of billions of dollars in US assets. These include big tech stocks.
Rising rates directly hit their returns. Australia's own 10-year government bond yield has already risen to its highest level since 2011.
This shows global pressure. Cabana sees the risk coming if US inflation expectations break free from current levels.
- 3.75 to 4 per cent
- Current Federal Reserve rate
- 5 to 5.5 per cent
- Cabana's estimated danger zone
- $395 billion ($US275 billion)
- Bank of America value
- 2011
- Australian bond yield high since
Why it mattersEvery working Australian's super balance depends partly on US asset prices. Higher rates flatten those prices and cut retirement savings directly.
AustraliaAustralian super funds managing workers' retirement savings hold massive amounts on Wall Street. If US rates hit 5-5.5%, those assets will fall in value, shrinking super balances across the country.
✓ Claims checked against the source and corrected before publish. checked 1 h ago
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