Bank Stocks Up As 90-day Bank Bills Slide Further

The Age

Tuesday December 30, 2008

VANESSA O'SHAUGHNESSY, INVESTMENT REPORTER

LOWER funding costs helped Australian banks push the sharemarket 1.1 per cent higher, despite low trading volumes overall.

After a directionless session, the S&P/ASX 200 Index closed 38.9 points higher at 3621.1.

It was buoyed by Commonwealth Bank, which gained $1.03 to $28.18, along with National Australia Bank (up 76 to $20.87), ANZ (up 43 to $15.30) and Westpac (up 25 to $16.75).

Yields on 90-day bank bills fell for the eighth day in a row, to just 4.03 per cent, well below the official cash rate of 4.25 per cent.

CommSec chief economist Craig James said the yields on offer were the lowest since the late 1960s, when the bills were introduced.

Similarly, yields on 10-year government bonds closed almost 3per cent lower yesterday at 3.969 per cent after moving in a range between 3.97 and 4.042 per cent.

"Long bond yields were last at these levels in the early 1950s," Mr James said. "Ten-year government bond yields stood at 3.53 per cent in June 1951."

The low yields reflect interest rate expectations, and may provide a boost to the banks, which have been dealing with high funding costs for some time.

According to Credit Suisse, the market is pricing in 120 basis points of rate cuts within the next 12 months. And investors are certain the Reserve Bank will cut rates again in February.

On the sharemarket, Woodside Petroleum gained $1.87 to $34.77 as the price of oil moved up from its lowest in more than 4 years. Turmoil in Israel pushed West Texas intermediate crude from as little as $US31.41 a barrel in New York last week to as high as $US33.48 a barrel before the Christmas holidays.

Oil futures climbed even higher, jumping to $US38.59 a barrel.

And rare earths miner Lynas Corporation regained some ground after big falls last week. The shares rose 5.5, or 31.4 per cent, to 23. In March last year they peaked at $1.675 (see graph below).

The dollar also gained strength, climbing to near US69, after reaching a low of just US60.1 in late October.

But QBE Insurance lost 53 to $25.06, Westfield Group was down 20 at $13.20 and Foster's Group fell 13 to $5.37.

Australia's biggest office property trust, Macquarie Office Trust, also fell, losing 4, or 12.1 per cent, to 29, because of the need to refinance a $US74.5 million ($A109 million) loan on a Delaware property.

Its bankers have agreed to extend the existing loan until March 1.

Meanwhile, nabCapital senior markets economist Spiros Papadopoulos said there would be little economic data to influence the market this week.

Private sector credit numbers will be released tomorrow. However, manufacturing data will be released for China, Europe and the US. And keenly watched housing price figures will also be released in the US.

© 2008 The Age

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