Australian/NZ Rates Strategy: FY27 Semi Outlook

Research evidence excerpt

Australian/NZ Rates Strategy: FY27 Semi Outlook

Global Research

27 July 2026ab

Australian/NZ Rates Strategy Interest Rates

AustralasiaFY27 Semi Outlook

Nic Guesnon, CFA

Strategist

nic.guesnon@ubs.com

The economy has passed an inflexion point and is starting to slow down, with +61-2-9324 2192

patches of secular strength remaining from AI and public spending. Swap Kieran Kelly

& ACGB curves should steepen through 5s10s and 10s30s in FY27. But with Associate Analyst

inflation still overheating according to our systematic nowcast model, we kieran.kelly@ubs.com

think it is too early to get excited about the front end or 3s10s steepeners. +61-2-9324 2107

Annalaura Capuano Going forward, deterioration in State Government expenses, especially

employee, or capex is expected to flow through to deteriorations in net annalaura.capuano@ubs.com

operating positions and higher borrowing programs. This reality was largely +44-20-7567 1879

avoided in FY27 Budgets season due to strong revenue gains from better

economic growth and higher commodity prices. But we think these revenue

windfalls are unlikely to be repeated in the current economic climate.

In FY27, State elections will feature in the two largest jurisdictions NSW (Mar-

27), VIC (Nov-26); these two States cover over half the population of Australia

and half the semi borrowing program.

In our view, political and fiscal shifts represent the fundamental vulnerability

and risk factor for the semi sector in FY27. The polls suggest a dramatic shift

away from the major parties is underway, with support growing for right wing

party One Nation. In our view, this dynamic is likely to see incumbent

Governments deliver ongoing cost of living support and realise higher

employee expenses outcomes, especially in the two largest States. This