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The Point
Quick, actionable insights for investors
Income and Fixed Interest
Amy Xie Patrick: No more sugar hits for China
Amy Xie Patrick: A fixed-income perspective on current market volatility
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Amy Xie Patrick: A fixed-income perspective on current market volatility
Big market moves have rocked sentiment since the beginning of August.
What’s the outlook for a US recession and potential rate cuts?
US markets expect a 50-basis-point cut in September, followed by consecutive 25-point cuts, says Pendal’s head of income strategies, Amy Xie Patrick.
“Some big-bank economists are calling for back-to-back 50-point cuts – even an inter-meeting emergency cut.” Are things really that dire?
“We argue the data isn’t there yet,” says Amy.
Either way, we’re in “the ripe part of the cycle” for owning at least some bonds in portfolios, she says.
“Without a recession, bond yields should continue to fall steadily as central banks normalise their policy settings from restrictive levels. With a recession, bonds will pay for themselves.”
Bonds provide great insurance for the unpredictable. Add to that the 4% types of annual income returns you can get on US or Australian 10-year bonds and it basically amounts to being paid to take out insurance.
Tim Hext: Rate hikes off, rate cuts on in 2025
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Tim Hext: Rate hikes off, rate cuts on in 2025
Despite a narrative around re-emerging inflation, Australian investors are remarkably relaxed about the outlook for prices, observes Pendal’s head of government bond strategies, Tim Hext.
April’s inflation numbers – released yesterday – show a 3.6% increase in the annual Consumer Price Index. That’s slightly higher than March (3.5%) and more than the 3.4% markets were hoping for.
A rise in goods prices – mainly furniture, footwear and clothing – will not go unnoticed by the Reserve Bank and will require further investigation, says Tim.
But overall, the market is backing the RBA to do its job, he says. Implied 10-year inflation levels remain reasonably well anchored at 2.77%.
“Three-year yields in Australia moved back above 4 per cent after the data. We view this as a buying opportunity, since our medium-term view on inflation is positive.
“US inflation numbers come out on Friday and should show lower rental data feeding through to lower outcomes.
“Unless our concerns ramp up, we will be happy to be long duration into the winter months.”
Tim Hext: Can the RBA be patient with inflation?
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Tim Hext: Can the RBA be patient with inflation?
Despite a narrative around re-emerging inflation, Australian investors are remarkably relaxed about the outlook for prices, observes Pendal’s head of government bond strategies, Tim Hext.
April’s inflation numbers – released yesterday – show a 3.6% increase in the annual Consumer Price Index. That’s slightly higher than March (3.5%) and more than the 3.4% markets were hoping for.
A rise in goods prices – mainly furniture, footwear and clothing – will not go unnoticed by the Reserve Bank and will require further investigation, says Tim.
But overall, the market is backing the RBA to do its job, he says. Implied 10-year inflation levels remain reasonably well anchored at 2.77%.
“Three-year yields in Australia moved back above 4 per cent after the data. We view this as a buying opportunity, since our medium-term view on inflation is positive.
“US inflation numbers come out on Friday and should show lower rental data feeding through to lower outcomes.
“Unless our concerns ramp up, we will be happy to be long duration into the winter months.”
Signal or Noise – Amy Xie Patrick on Livewire
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Signal or Noise – Amy Xie Patrick on Livewire
Pendal’s head of income strategies AMY XIE PATRICK joined Livewire to discuss the “Goldilocks era” of income and answer some of the market’s quick-fire questions.
Income and fixed interest: Pendal’s quarterly deep dive into the themes driving Australian markets
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Income and fixed interest: Pendal’s quarterly deep dive into the themes driving Australian markets
Pendal’s income and fixed interest team has just published its quarterly deep dive into the themes driving Australian markets.
In the latest edition, head of government bond strategies Tim Hext explains how the RBA’s liquidity system affects investments – and why Australians need to honestly appraise the liquidity of their funds.
Head of income strategies Amy Xie Patrick explores which kind of income funds are best suited to the likely economic landing scenarios.
(Hint: not one-dimensional funds).
Senior credit analyst Terry Yuan writes about a recent transformation in the credit bond issuance market which has led to a number of deals becoming heavily over-subscribed.
An unprecedented shift from a buyer’s market to a seller’s market has led to significant changes in pricing dynamics, Terry says.
Lastly, senior ESG and impact analyst Murray Ackman has a quick guide to the key questions investors should ask about sustainable investing opportunities.
Murray Ackman: Why we bought Australia’s first Commonwealth green bond
Australia has joined other sovereign nations in issuing an inaugural Commonwealth green bond.
There are several reasons why Pendal invested in the bond. Here are a few, according to senior ESG and impact analyst Murray Ackman.
Firstly, we want the first Commonwealth green bond to support new projects. “This is known as additionality – that is, funding something that would not have been funded but for this green bond,” Murray explains.
Secondly, Pendal examined whether the bond funded revolutionary projects. “We would like to see more catalytic change, but for the very first Commonwealth Green Bond, we are pleased with the scope of projects.”
Pendal was also satisfied the bond included clear reporting on impact as well as performance.
“The government made the commitment to have independent verification of allocation and impact reporting.
“We are hopeful that this bond will demonstrate what the minimum requirements are for clear and transparent reporting for green bonds in Australia.”
Tim Hext: Investors are still relaxed about the inflation outlook
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Tim Hext: Investors are still relaxed about the inflation outlook
Despite a narrative around re-emerging inflation, Australian investors are remarkably relaxed about the outlook for prices, observes Pendal’s head of government bond strategies, Tim Hext.
April’s inflation numbers – released yesterday – show a 3.6% increase in the annual Consumer Price Index. That’s slightly higher than March (3.5%) and more than the 3.4% markets were hoping for.
A rise in goods prices – mainly furniture, footwear and clothing – will not go unnoticed by the Reserve Bank and will require further investigation, says Tim.
But overall, the market is backing the RBA to do its job, he says. Implied 10-year inflation levels remain reasonably well anchored at 2.77%.
“Three-year yields in Australia moved back above 4 per cent after the data. We view this as a buying opportunity, since our medium-term view on inflation is positive.
“US inflation numbers come out on Friday and should show lower rental data feeding through to lower outcomes.
“Unless our concerns ramp up, we will be happy to be long duration into the winter months.”
Three charts that show the advantage of an active approach to fixed income
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Three charts that show the advantage of an active approach to fixed income
It’s been a bumpy road for fixed income – here’s the data on why now’s the time to consider allocating to an active manager, writes Pendal’s AMY XIE PATRICK
Amy Xie Patrick: There’s more to life than Term Deposits
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Amy Xie Patrick: There’s more to life than Term Deposits
THE RESERVE BANK held the Overnight Cash Rate steady at 4.35% on May 7 for the fourth consecutive meeting.
At first look, this makes 12-month term deposits seem attractive.
The 2022 “everything sell-off” still haunts many investors, while the allure of higher interest rates and certainty of returns is hard to turn down.
At the margin, however, investors we speak to are starting to wonder whether there is more to life than term deposits — even in a higher interest rate environment.
Our answer? Yes!
Tim Hext: Looking beyond the noise at this year’s Budget
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Tim Hext: Looking beyond the noise at this year’s Budget
Despite a half-hearted post-Budget “higher-spending, higher-inflation” narrative, bond yields were “sharply unchanged, to quote the cliché”, says Pendal’s head of government bonds, Tim Hext.
“I think the RBA will see the Budget for what it is: a mixed bag of measures that will leave them hopeful of further inflation relief, but wary of whether the 2-3% target band can be achieved and sustained.”
Some Budget hawks are calling for higher rates to combat inflation they expect from new spending measures and future deficits based on conservative commodity price forecasts, Tim says.
“My view is we are sufficiently past the pandemic that supply chains can handle a modest rise in consumer spending without stoking inflation.”
A number of direct Budget measures – especially the $300 electricity subsidies – should help the CPI, Tim says.
Federal treasury is forecasting inflation of 2.75% for 2024-25, while Tim expects the RBA to revise its forecast down from 3.2% to around 3%.
In a short analysis piece, Tim goes into more detail and covers the impact on bond issuance.
TIM HEXT: Investors should position now for lower rates later this year
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TIM HEXT: Investors should position now for lower rates later this year
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