Markets and sentiment continue to be influenced by COVID-19 developments both globally and domestically with conditions improving marginally within the Australian market, but a generally cautious approach taken by borrowers, lenders and investors.

• The continued escalation in the outbreak of COVID-19 around the globe and the onset of further waves of infections presents itself as the primary threat to both global and domestic economic growth.
• One of the major ongoing challenges facing governments, capital markets and borrowers is the unknown scale and long term economic impact resulting from COVID-19 and what will be the ‘new normal’.
• Despite this uncertainty, debt capital markets remain liquid and functioning. This is underpinned by substantial Government policy stimulus measures, which we expect to continue to play a significant role in the short to medium term until the economic effects from COVID-19 have plateaued.
• The Reserve Bank has communicated over recent months that it would not increase the cash rate target until economic conditions improve and inflation is sustainably within the target range of 2 percent – 3 percent p.a. Based on its current outlook for the economy and its recent expansionary policy package announcement, this is still some years away. The RBA has noted it does not expect the cash rate to be increased for at least the next 3 years.
• We expect financiers to continue to approach lending opportunities with a heightened degree of caution, however, we also expect banks to selectively grow balance sheets to defend and grow market share.
• The Australian debt market is now far more diversified given the increased penetration of international banks and the range of non-bank lenders active in the market across the credit spectrum.
• This landscape will present some interesting dynamics for borrowers and lenders. We expect non-bank lenders to grow their share of the Australian lending market going forward.
• As we wrote last quarter, it is no longer a borrower’s market and ‘liquidity remains king’, despite a continued modest improvement in market conditions during the quarter. However, borrowers that position themselves to have access to a range of funding options, have a well-developed funding plan, and have engaged in robust contingency planning will still achieve good funding outcomes.