Merricks Capital provides innovative investment solutions that deliver consistent performance for its investors while operating with financial discipline and prudent risk.
Our investment strategies include private credit across commercial real estate, agriculture and infrastructure and specialised industrial.
Established in 2007, Merricks Capital delivers a truly differentiated multi-strategy offering, with extensive investment capability and global experience spanning multiple asset classes.
Fed’s Balance Sheet Pivot: Implications for Real Estate and Credit Markets
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This week we have had clear direction from the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed) in the USA that further rate cuts in November are unlikely.
Whilst our base view is that the overnight interest rates are going lower next year, these short-term rates may be less important in driving the underlying transaction volume in real estate and infrastructure.
Liquidity in the global 5-yr and 10-yr bond markets will be a key determinant in setting the risk-free benchmark which all assets are priced.
The announcement of the Fed ending of Quantitative Tightening (QT) this week is pivotal as it reinjects $40-50bn of buying back into bond and mortgage markets.
If the “800lb gorilla” is now driving bond markets in a different direction we think there is far less risk that bond yields go higher.
The confidence in a stable rate environment moves the risk framework for long duration yield investments such as real estate.
In our view, rates now stay flat or go lower if there is some economic shock, but the risk of going higher has been reduced.
The Fed has hit a clear liquidity inflection after two years of balance sheet contraction. Since April 2022, assets are down about US$2.4T to ~US$6.6T and the Overnight Reverse Repo Facility has fallen from US$2.4T to ~US$10B, signalling scarce excess cash. The Fed will end QT on 1 December 2025, reinvesting Treasuries and redirecting agency mortgage-backed securities into Treasuries, alongside the October 25bp cut to 3.75–4.00%. That puts US$40–50B/month of price-insensitive demand back into the market, anchoring the long end and reducing upside yield risk as reserves stabilise.
In Australia, a hotter CPI delays RBA cuts, but our medium-term view stays disinflationary, helped by China’s PPI deflation and softer domestic demand. Capped global yields plus a cautious RBA improve underwriting visibility: lower-volatility term rates and deeper bond liquidity support valuations, refinancing and deal flow. This is a constructive setting for senior, asset-backed private credit. Better liquidity and a capped risk-free rate improve exits without loosening covenants. We’ve already seen ~A$575m of repayments and ~A$840m of deployments YTD and expect ~A$700m of further repayments and ~A$1.5bn of new funding over 12 months as conditions ease into 2026.
