The Point

Tim Hext: The market has eyes only for Trump

Amy Xie Patrick: Finding income in a post-hybrid market

Many fixed-income investors will soon be looking for new opportunities as prudential regulator APRA starts to phase out bank hybrids from 2027.

Bank hybrids have been a popular cornerstone of income-generating portfolios. But did they truly live up to their promise – and is there a better strategy?

Pendal’s head of income strategies Amy Xi Patrick answers both questions in a new article.

Amy argues bank hybrids are ill-suited to serving a defensive role; not as easily bought and sold as investors might believe; and may not meet their “higher income potential”.

Investors can find better alternatives, she believes

“We start by mapping investment objectives to assets that have a proven track record of delivering against those objectives.

That means we don’t have to accept market narratives about hybrids (or any other asset types) that have not been entirely accurate.”

In this article, Amy describes a portfolio construction method she believes is better suited to producing a regular, stable and repeatable income stream and capital growth to help offset the effects of inflation.

Read the article

Tim Hext: Inflation on track but still too high

Income & Fixed Interest: Pendal’s quarterly insights on the themes driving Aussie markets

In their latest quarterly report, the team discusses some of the biggest trends affecting Australian fixed income investors right now – click through.

Tim Hext: Inflation is easing, but the RBA isn’t celebrating yet

The latest GDP data shows a weak Australian economy, but the numbers should pick up from here, says Pendal’s head of government bonds, Tim Hext. Here are five takeaways.

1. Government spending remains strong despite government investment tapering off. “This remains a central factor behind strong employment and inflation – and the animated debate between Treasurer Chalmers and RBA Governor Bullock,” says Tim.

2. Households are going backwards again. “Tax cuts and subsidies could bring the consumer back in Q3, but early data from July suggests it may be a slow burn.”

3. Households are barely saving anything. This likely indicates incomes not keeping up with prices rather than exuberant consumer spending, says Tim.

4. Australia’s commodity boom is waning (a negative for GDP) but remains historically strong

5. GDP should pick up from here. The RBA is forecasting 1.7% GDP this year and 2.6% in 2024-25. Since the first two quarters are up 0.4%, the RBA is expecting 0.6% to 0.7% quarterly rises over the next year.

“That may seem a bit optimistic, but the possibility of rate cuts and falling inflation could well see a decent rebound in the economy.”

Read Pendal’s latest fixed-income report

Tim Hext: What the US rate cut means for investors – and what’s next

Now that the US rate-cutting cycle has begun, the Federal Reserve has shifted its focus from inflation to employment, according to Tim Hext – Pendal’s head of government bond strategies.

The Fed’s 50 basis point cut, its first since 2020, brings rates down to 5%.

Instead of supporting markets, the cut pushed both bonds and equities in the opposite direction – with yields rising by about 5 basis points and equity markets falling around 0.5%.

This reaction, Tim explains, is more about market expectations versus the Fed’s own projections.

“The impact of hosing down expectations outweighed the larger actual cut,” he says.

The Fed’s rate projections show that the market is still ahead of the Fed, particularly in the near term.

With two meetings between now and the end of the year, Tim adds that employment data will be key to the Fed’s decision-making.

“The Fed is now more focused on employment than inflation, so payroll data will be front and centre,” he says.

He explains more in his latest article