Monthly Fund Commentary State Street Floating Rate Fund
In November, the State Street Floating Rate Fund returned 0.29% (net), outperforming the benchmark by 0.01%1.
Australian short dated yields rose through November as the market pared back expectations of near term RBA cuts. Early in the month, front end rates moved higher, and the tone turned more cautious after the labour force report showed unemployment fall back to 4.3% with 42k new jobs added (including 55k full time). That stronger jobs print pushed short maturity yields up more than longer maturities and reinforced the message that the path of policy would be guided by incoming data rather than an immediate easing bias.
As the month progressed, the front end stayed data driven: wages (Q3 WPI +0.8% q/q) were broadly in line, keeping short dated yields largely range bound. Then on 26 November, the first full monthly CPI print came in stronger than expected with headline at +3.8% y/y (vs 3.6% expected), and trimmed mean at +3.3%( vs 2.9% expected) and the market unwound any remaining cut expectations, sold short dated contracts, and flipped decisively to a higher for longer stance with expectations moving to hikes next year. By month end, front end pricing reflected that stronger inflation pulse rather than any immediate easing narrative. The fund continues to outperform and we are seeing consistent inflows. We participated in the Westpac 5yr issuance over the month given spreads still represent good value despite being stuck in a holding pattern as we move towards the end of the year.
The State Street Floating Rate Fund has outperformed its benchmark over all time periods net of fees, delivering +0.99% of alpha over the past 12-months, +1.24% p.a. over the past 3-years and +0.87% p.a. since inception.
Looking Ahead
Market Update and Outlook
November saw Australian fixed income markets deliver their worst month of the year, with the Bloomberg AusBond Treasury 0+ Yr Index declining by -0.93%, while the broader AusBond Composite Index fell by -0.88%. The selloff was driven by a hawkish repricing of RBA policy expectations, following an upside inflation surprise and resilient domestic demand.
As expected, the Reserve Bank of Australia held the cash rate steady at 3.60% at its November meeting. In a unanimous decision, the Board cited higher-than-expected Q3 CPI prints for both headline inflation (+1.3% QoQ, +3.2% YoY) and trimmed mean (+1.0% QoQ, +3.0% YoY) as key drivers. The statement carried a hawkish tone, noting that inflation was “materially higher than expected at the time of the August Statement on Monetary Policy.” The November Statement on Monetary Policy (SoMP) included significant upward revisions to trimmed mean CPI, now projected at 3.2% by mid-2026 (previously 2.6%), signalling that core inflation will remain above target for an extended period. Correspondingly, the Bank lifted its cash rate outlook to 3.6% through year-end (previously 3.4%) and 3.4% by mid-2026 (previously 3.1%). At its December meeting, the Board again left rates unchanged, emphasizing patience but indicating that, based on current information, interest rate cuts are not expected in the foreseeable future.
Looking ahead, we think the near-term trajectory for Australian rates remains skewed to the upside as persistent inflation and the RBA’s hawkish bias keep easing expectations firmly off the table. While the December meeting reinforced a “higher-for-longer” stance, the Board’s emphasis on data dependency means upcoming monthly CPI prints and labour market trends will be pivotal in shaping the path forward. We believe the resilient domestic demand, robust employment conditions, and sticky services inflation suggest risks remain tilted toward further repricing higher rather than cuts. Against this backdrop, front-end yields are likely to remain under pressure, with the RBA appearing firmly committed to anchoring inflation expectations, even if it means maintaining restrictive settings for longer.
Bottom Line
“Wind extinguishes a candle and energizes fire.” — Nassim Nicholas Taleb
Nassim Nicholas Taleb is a Lebanese American essayist, statistician, and former options trader, best known for The Black Swan and Antifragile. His work centers on uncertainty, fat tail risks, and systems that benefit from volatility.
Rather than predict every twist in the data, design portfolios that gain from variability. Antifragility is the idea of turning shocks into tailwinds: build optionality, favour convex payoffs, and keep ample liquidity so you can respond – not react. In practice, that means incorporating instruments whose income or advantage rises as conditions get bumpy, and protecting against unfavourable moves. The goal isn’t merely to endure surprises; it’s to be positioned so the right kind of surprise helps you, especially when it’s unexpected.
Australian front end pricing has shifted up and now incorporates a non trivial risk of hikes next year (Figure 1), with the market’s implied overnight rate showing a clear higher for longer stance all the way through 2026 (Figure 2). The meeting by meeting path is consistent with an RBA that remains focused on upside inflation risks and a still tight labour market. For investors, the framing is straightforward: the policy path has been repriced higher, so portfolios should expect elevated reference rates to persist and position portfolios to harvest that path in the most rate efficient way.
This backdrop favours Floating Rate Notes (FRNs). Coupons on floating rate notes reset off BBSW, so income steps up automatically as reference rates rise without adding duration risk. Unlike fixed rate bonds, FRNs’ low duration keeps price moves contained when yields rise, helping overall volatility and drawdown control. Liquidity is deep in the Australian FRN market, with the four major banks accounting for around 45% of issuances. This provides investors with clear entry/exit points and enables them to stay nimble around data prints while maintaining a high quality, cash-plus investment.
This chart shows Bloomberg’s AUD Overnight Index Swap at the 4 month tenor: the fixed rate the market would pay to receive the RBA cash rate (AONIA) daily compounded over the next four months. An AUD OIS is a fixed for floating interest rate swap in which the floating leg references the published overnight cash rate index. As such, this series is a straightforward readout of where markets expect the cash rate to sit over that horizon: when the line moves higher it reflects expectations of higher policy rates; when it moves lower it reflects expectations of lower policy rates.
This chart summarises the market’s RBA policy path by meeting. The blue line plots the implied overnight cash rate for each meeting month, derived from AUD OIS (AONIA); it provides the level the market expects the cash rate to be at that meeting (rising toward ~4% into late‑2026, with a modest dip mid‑year). The orange columns show the net number of 25bp moves priced between today and each meeting – positive bars = hikes, negative bars = cuts, and values near zero indicate little change expected. Read the chart left‑to‑right: use the line to see the expected rate level, and the bars to see how many incremental moves are priced on the way to that level.