Hello. I don't recall having as many school holidays when I was a child as my two children do, and certainly not for as long! After taking our 2020 trip to Vanuatu in 2023, we're back in town. Kids are back at school and financial markets continue to bamboozle investors.

What a year 2022 was, and what a first quarter of 2023 it has been. The market is finally cracking from the rapid rise in interest rates from central banks around the world. However, only certain segments are cracking. It doesn't appear to be a wild bushfire - yet. And I'm not saying there will be one either.

We were all cheering for a hold on rates by the US Fed. Alas, we were greeted with a short jab to the guts with a 0.25 bps rise. It's pretty tough out there at the moment, as we have seen and read with all that is unfolding with the US and European banking system. Yet central banks are sticking to their script.

Following last week's events, which appear to have rolled into this week too, financial markets around the world are pricing in rate cuts from both the US Federal Reserve and the Reserve Bank of Australia (RBA). Although, the European Central Bank (ECB) raised rates by 0.50 bps following SVB's collapse citing a resiliant banking system, with strong capital and liquidity positions. Really?

This is the biggest and only story in town right now. Here's my take:SVB was the bank of choice for Silicon Valley's hot start-ups. As the technology bull market turned bubble, SVB grew its deposits and assets at a rapid pace up until 2021. All these deposits had to go somewhere. And somewhere was 10-year US Treasuries yielding about 1.50% pa. Since then, we all know what happened with interest rates - up. Up a lot. Since then, the IPO market has dried up. The M&A market has dried up. Most of these companies, as we know, we're making a lot of money, some if any. These companies were then burning through the deposits at SVB - business operations, payroll, and so on.

Most headlines I read nowadays are about how much the average loan repayment has increased by and will increase by for Australians. You don't hear or see too much of this headline for the US. Have you ever wondered why? The US mortgage system is a little different to ours. One of those differences is that most borrowers take out a fixed rate mortgage, typically for 30 years. Whereas in Australia, most loans are taken out on a variable basis.