Higher interest rates will eventually work, but they’re not working just now, argues Pendal’s OLIVER GE. That could mean bonds become even better value next year
- Inelastic demand and supply mean rates work differently
- In likely scenario, bonds a good place to invest
- Find out about Pendal fixed interest capabilities
WHAT if higher interest rates worked against cutting inflation?
Or at least had little effect on demand — making rate hikes ineffective in the fight against inflation?
“I want to talk about the idea that in an environment where demand is still reasonably strong, interest rate hikes effectively do nothing,” says Oliver Ge, an assistant portfolio manager with Pendal’s income and fixed interest team.
“Rather than cooling things down, they might be pushing them back up,” Oliver says.
The idea comes down to the notion of elasticity of demand – a measure of the change in the demand for a product in relation to the change in its price.
Elastic demand means there’s a big change in quantity demanded when there’s a change in price.
Inelastic demand is the opposite – little change in demand no matter what the change in price.
“When households are in decent shape, as they are today – when you have wages growth at decade highs and unemployment at near record lows, and savings are still plentiful – you end up with an environment where people are much less sensitive to price changes,” Ge says.
Covid lowered our price sensitivity
“During lockdowns, people were happy to pay for a whole range of goods like laptops, gardening tools, toilet paper,” notes Ge. “Consumer demand collectively channelled its momentum into household items.
“Suppliers jacked up prices but there was still plenty of demand.
“While we have moved on from Covid, we haven’t moved on from this sort of low-price sensitivity environment.
“The money has only moved on from chasing goods to instead chasing services.
“The bottom line is that the elasticity of demand is very, very low. It’s basically inelastic.”
Services are labour intensive – hospitals, hotels, cafes, restaurants, airlines employ hundreds of thousands of people, Ge says.
“Even though we’ve added a million people to the workforce since 2020, businesses are still experiencing labour shortages.
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“It’s a Covid hangover. People want to go out. They don’t want to be the people serving everyone else.”
“As a central banker you see inflation rising and your natural instinct is to raise rates. But the usual transmission mechanism is broken,” he says.
Transmission breakdown
Previously lifting interest rates would trigger tighter lending and refinancing, and companies would cut back on costs, including staff, says Ge. That would lead to higher unemployment and that would dampen inflation.
“But today, businesses aren’t really cutting back on staff. They’ve struggled to find and retain the right people, and thus don’t’ now want to lose them,” Oliver explains.
“Instead what they’ve chosen to do is compromise in other areas – say reduce the quality of ingredients if they are a restaurant.
“Or they are just passing the cost through to the consumer. And people are happy, at present, to pay the higher prices. Until they’re not.”
This process demonstrates an inelasticity of supply, as well as demand.
“So you have this relationship where higher rates are hurting businesses and to cope, they’re lifting prices, which consumers are paying.
“There’s a breakdown in the transmission of monetary policy to the employment market. In a very counterintuitive way, hikes are making things worse, not better.”
What it means for fixed interest investors
Higher interest rates will eventually work, but they’re not working just now, argues Ge.
“It will be the straw that breaks the camel’s back. It’s hard to see the stresses today but when it comes, it will come suddenly.
“I think there will be a fairly aggressive breaking point around the middle of next year. The Reserve Bank could realise too late, and then desperately try to reverse the rate rises.
“At which point bonds could become very good value. They are already good value, but that’s when the have the potential to become even better value.”
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an assistant portfolio manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
Despite noise about another inflation surge and higher rates, central banks look to have price rises well under control, argues Pendal’s OLIVER GE
- Fears of 70s inflation rerun unfounded
- Why bonds, why now? Pendal’s income and fixed interest experts explain
- Find out about Pendal fixed interest capabilities
FOR or all the recent headlines about rising costs, oil prices and interest rates, there’s little to suggest inflation is anything other than under central bank control, argues Pendal’s Oliver Ge.
US inflation numbers came in higher than expected for August, marking the first acceleration in price rises since February.
The data sparked a number of news reports extrapolating the monthly figures to warn of a second wave of inflation and a new round of interest rate rises.
But a closer look reveals that the global economy is a long way from the narrative the news media are pushing, says Ge, a portfolio manager with Pendal’s Income and Fixed Interest team.
“This kind of stuff is going to get a lot of clicks.
“Thirteen consecutive months of disinflation in the US and now we’ve had the first tick up, and somehow the media is extrapolating that the Federal Reserve is on the case and it’s all going to end in the crapper.”
Ignoring noise created by business media is an important lesson for investors, says Ge.
“There’s a lot of commentary on a possible ’70s-style, second wave of inflation. And how if that were to happen, central banks would need to react.
“But I don’t believe we’re going down that path. We’re not even close to a rerun of the 70s.”
The dual inflation shocks of the 70s and 80s have gone down in investing folklore as a tumultuous period of skyrocketing prices, spiralling wage rises and damaging unemployment.
“Some people are concluding that we’re on the path to repeat the 70s/80s experience when inflation hit almost 15 per cent in the US.
“But there are a few reasons why we’re not likely to get a re-run of what happened 50 years ago.”
Ge says the 70s crisis was unique and brought about in part because the US economy was running very hot.
“In 1973, the US economy was growing at 7.6 per cent — three times higher than what it is today.
“It also had a highly unionised labour force. And then it got whacked with two major oil shocks.
“The difference is that back then, the US was highly oil dependent, and it also was experiencing a massive devaluation of its currency. Put the two together and it triggered a big wave of inflation.
“At the same time, the US was home to a sizeable manufacturing sector, which was very highly unionised. They had explicit mandates in contracts that matched pay to inflation.”
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But he says the environment today is very different.
“The US is no longer energy dependent — in fact it is an exporter of oil. Unionisation is no longer widespread. There are none of the original catalysts that prompted the blowout.”
The central banks also play a different role today, says Ge.
“Central banks today have a very explicit inflation fighting objective — they are not going to suddenly drop rates because inflation is coming down like they did in the 70s.
“They will choose to err on the side of caution. That means we’re going to see an environment where rates are going to be higher for longer.
“The picture I’m painting isn’t sexy — but it’s real. And it should comfort investors.”
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an assistant portfolio manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
The risk of recession appears to be sidelined for now, but investors may be overlooking one factor, argues Pendal’s OLIVER GE
- Tightening credit threatens business viability
- Bonds best protection from recession
- Find out about Pendal fixed interest capabilities
A NUMBER of US banks and analysts have walked back their recession predictions in recent weeks.
But there are still worrying signs in the business sector, cautions Pendal’s Oliver Ge.
Much of the discussion about higher interest rates has focused on the impact of bigger mortgage repayments for homeowners.
But tightener credit conditions and stricter collateral requirements for business are likely to have a more significant impact on the economy, argues Ge, an assistant portfolio manager with Pendal’s income and fixed interest team.
“There’s a growing narrative that the economy can navigate through this tightening cycle without derailing growth and causing havoc to the jobs market.
“It can be hard to argue against this. Despite 400 basis points in hikes from the RBA, economic activity remains reasonably robust and domestic employment is incredibly strong.
“But the economic brakes applied via interest rates is very gradual.
“What often gets overlooked is that there is another transmission mechanism — the tightening of lending standards — that carries perhaps more importance to the business cycle.”
As interest rates lift, banks will increase the perceived credit risk of all borrowers. To mitigate these risks they will impose stricter income and collateral requirements on their borrowers.
Small businesses are generally more reliant on bank loans given that they have fewer alternative sources of funding.
“It’s not the cost but access to credit that matters,” says Ge.
“Small business owners rely on a flow of working capital to pay their suppliers and employees. At the moment, the banks are happy to supply that. But should lenders’ outlook on the economy turn, they may have to cut off those lines of credit”.
“That’s when businesses will be forced to pare back on labour and supplies. That spills over into the rest of the ecosystem — that’s when you get that pain.
Tighter lending in the US
As you can see below, there’s evidence that banks are already tightening lending in the US, where the Federal Reserve conducts a quarterly survey of the biggest banks to assess lending terms.
“Lending standards have tightened significantly, comparable to historic highs,” says Ge.
“Business cash buffers are running out and you’ll likely see a wave of defaults over the course of the next six-to-nine months.
“Ultimately, that is where we’re headed. But it’s not something people are factoring into their forecasts.”
A tightening of lending standards has real potential to push the global economy into recession, says Ge.
“Whatever happens in the US will filter through to the rest of the world. There’s no way that Australians can somehow insulate themselves.
“At the start of the year, people were tossing up between a soft and hard landing. The hard landing scenario has faded from people’s memories.
“But the prospect of recession is still very much out there.”
Find out about
Pendal’s Income and Fixed Interest funds
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an assistant portfolio manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
The current yield curve inversion — where short-dated bonds yield more than long-dated bonds — may not mean a recession is imminent, argues Pendal’s OLIVER GE
- Yield curve inversion traditionally predicts recession
- But transitory inflation could be an alternative explanation
- Find out about Pendal fixed interest capabilities
THE prospect of stagflation has been the talk of markets in recent weeks as rising short-term interest rates push the bond yield curve into inversion, flagging a sign of impending recession.
An inverted yield curve — where shorter-dated bonds yield more than longer-dated bonds — is an important indicator for investors.
Longer-dated bonds usually pay higher interest rates to compensate for their increased risk over time. But right now short-term interest rates are moving closer to — and even higher than — long term rates.
That’s important because it’s traditionally a harbinger of recession.
But with a strong global economy, low unemployment and benign equity market conditions, analysts have been looking for an alternative explanation for the inversion other than a surprise descent into stagflation and recession.
Oliver Ge, a portfolio manager with Pendal’s Income and Fixed Interest team, says the yield curve inversion may also be explained by expectations that current inflationary pressures are only short term.
“There are two ways this can be interpreted,” says Ge.
“In one sense you can see it as a sign of recession. But I don’t think that’s the case”.
“Instead, what we’re seeing in the market is that short-dated bond yields are higher because they carry a premium to their longer-dated counterparts to compensate investors for bearing higher near-term inflation risk. That’s what’s driving the inversion”
Stagflation is a worry for markets because it means a toxic combination of rising prices and lower economic growth.
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Pendal’s Income and Fixed Interest funds
But Ge says the conditions for stagflation are not present in the global economy.
“There’s 1.8 jobs available for every person who wants a job in the US,” he says.
“That’s more jobs per person than there has ever been.
“In Australia, the workforce is in a stronger position than it was pre-pandemic. We’ve recovered all the job losses we had in the pandemic and created more and there are still labour shortages.
“Some say it’s about borders and immigration — but this is a global phenomenon. The overriding theme across the world is employment is fantastic. There are jobs for everyone.”
Ge says in such a strong economic environment, it’s difficult to believe that a few interest rate hikes will stop businesses hiring.
Returning to recession so soon after the global pandemic downturn would also be surprising from an historical view, he says.
“Looking back, you see a recession every eight to 10 years or so. The yield curve is telling us there is a recession around the corner but that’s almost never the case historically.
“Maybe you get a bit of a slowdown, but you don’t get the end of days that some people are calling for.”
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Bonds have the potential to provide a positive investment return even during central bank rate-hiking cycles. Pendal’s OLIVER GE explains how
RATES go up, bonds go down. It’s an investing truism that has become ingrained in our thinking.
But what if, in fact, bonds had the potential to provide an investment return during central interest rate hiking cycles?
That’s the finding from research by Oliver Ge, a portfolio manager with Pendal’s Income and Fixed Interest team.
Monetary policy tightening cycles are actually kinder on bonds than people believe, Ge says.
“The key is that it depends on how much is priced into the bond market at the point central banks start lifting rates.
“Looking at history, an investor who buys bonds at the moment of the first rate hike in a cycle and sells at the last rate hike actually gets quite a substantial return.”
The finding demonstrates that there is a lot more nuance to the classic doctrine of “rates go up, bonds go down”, says Ge.
Since the 1990s there have four rate hiking cycles in Australia, each averaging an increase of 2.25 per cent to the RBA’s policy rate, he says. The annualised bond return over the same period was more than 4 per cent.
“The compelling story is don’t ignore bonds when rates are rising — they can still give you mid-single digit returns.
“That’s quite significant in a market where equities are negative.”
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Pendal’s Income and Fixed Interest funds
The explanation for why bonds had positive returns over those times is based on two factors, he says.
First, rate hikes do not materialise unannounced. The RBA broadcasts its decisions in advance and a considerable portion of future hikes are already in the price of the bonds before the first hike.
This means a 25 basis points move higher rarely translates into a direct one-for-one change in the yield of a bond, says Ge.
“During the 2009-2010 cycle, the RBA moved the policy rate up by 175 basis point from 3 per cent to 4.75 per cent. Over the same horizon, a five-year Commonwealth government bond moved up by around only 35 basis points,” he says.
The second thing is the pace of rate hikes. In principle, the more gradual a central bank tightens, the more income a bond can accrue to offset would-be losses, says Ge.
By magnitude, the largest tightening cycle over the last 30 years was 300 basis points, but it occurred over a six-year window, allowing bonds to maintain mid-single digit returns per annum despite the absolute quantum of moves.
“Right now, the market expects the RBA to kick off their hiking cycle in June, ending in mid-2024 at a peak rate north of 3 per cent.
“This puts the expected bond experience somewhere between the last two hiking cycles, both of which resulted in a positive outcome for fixed income investors.
“While a negative shock can’t be ruled out, the likelihood of further inflation surprise is diminishing.
“There’s already a lot priced into bonds. And it’s reasonable to say that we’re closer to the end of this higher rates move than we are at the start.”
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Ultra-loose monetary policy is creating exceptions to risk and reward – and bringing opportunities for investors seeking better returns for their cash. OLIVER GE explains
- Bonds paying better returns than bank deposits
- 4x returns when held to maturity
- Find out more about Pendal fixed interest funds
THE link between risk and reward is a staple of investment theory.
But ultra-loose monetary policy as the Reserve Bank of Australia seeks to support the economy’s pandemic recovery is creating some exceptions to that age-old rule.
Investors who choose the safety of a government bond (held to maturity) are now offered better returns than a nominally higher-risk bank term deposit, says Oliver Ge, a portfolio manager with Pendal’s Income and Fixed Interest team.
“If you’re willing to hold government bonds for a year — just like you would with a bank term deposit — you’ll get four-to-six times more money than you’ll get from a bank,” says Ge.
Cash is an important asset for many investors. It provides security and flexibility, and importantly it offers protection from being forced to sell assets in a downturn.
But for investors seeking income, it can offer very poor returns.
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Pendal’s Income and Fixed Interest funds
“You go to one of the big banks and they’re offering about 0.25 per cent interest rates on a one-year term deposit — $25 on a $10,000 investment. That’s not a lot.
“But if you’re happy to lock your money away for a year, why not try a government bond? A one-year Australian government bond is paying 1 per cent, so you’re getting four times as much money.
“Unless you think the Australian government is going to default — and as long as you hold to maturity — you’re better off giving them your money.”
Ge points out that state government bonds can offer even better returns, with the Western Australian semi-government bonds offering returns as high as 1.6 per cent.
Protection against downturn
Bonds provide a further advantage over term deposits because alongside guaranteed income and capital protection, they offer protection against an economic downturn.
“If there was a catastrophic event like a Covid version two and the RBA decides not to lift rates, these bonds could return a lot more as they will rise in value,” says Ge.
“Bonds are just insurance policies that always pay you — and when things blow up, they pay you even more.”
Ge says the anomaly exists because the RBA is providing very cheap funding to the banks, meaning they do need to compete for deposits in the market and can keep deposit rates artificially low without affecting the financing of their lending businesses.
“They have so much money they can afford to do this,” he says.
By contrast, government bonds are issued into a competitive global market and rates are set by investor demand.
Ge says the anomaly is likely to stay in place as long as the banks have access to cheap funding.
“This is a genuine opportunity to get a lot more juice with the same or better safety – assuming you hold to maturity,” says Ge.
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Could Russia’s invasion of Ukraine prompt Chinese action in Taiwan? That’s not likely in the medium term argues Pendal’s OLIVER GE
ALARM bells are ringing in the East.
As fighting intensifies in Ukraine’s urban core, Chinese jets have entered Taiwan’s air defence zone, leading some to speculate that it’s only a matter of time before we see People’s Liberation Army boots on the ground.
At times like this it’s understandable that investors pondering their exposure to Russia’s invasion of Ukraine might also think harder about the China-Taiwan stand-off.
Pre-election positioning among Australian politicians pulls the China-Taiwan situation into even sharper focus for local investors.
However a Chinese invasion of Taiwan is a very low probability event in the short and medium term.
Near term, the Chinese Communist Party has other priorities at stake.
President Xi has promised to rectify growing domestic discontent over diminished living standards. Housing affordability and employment opportunities are key focal points for the CCP leadership.
They do not have time for major external distractions.
In the medium term, Taiwan’s support from the US remains crucial. Remember that Taiwan (but unfortunately not Ukraine) is of great strategic importance to Washington.
Its proximity over major shipping lanes and dominance in semiconductor manufacturing has seen consecutive US administrations pledge Taiwan military support in the event of a war.
China has no appetite for a direct confrontation with the US.
In the longer term these reasons above do not negate the possibility of a future conflict.
A unified China is arguably the biggest political objective of the CCP. China’s dominance in the region and military capacity continues to build.
But for now the carrot of economic cooperation remains the preferred policy over brute force.
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Even with the promise of meeting bond interest payments, the risk of contagion from Evergrande has increased as investors rotate away from equities and high yield credit. Pendal’s Oliver Ge explains what’s next
CHINESE property giant Evergrande has staved off default on the first of many payments covering some $US300 billion in debt.
But investors are still holding their breath to see whether Beijing will step in and what happens next.
Pendal’s Oliver Ge says the fallout on the domestic Chinese market would be minimal in the event of a controlled default.
Evergrande — which owns 1300 projects in 280 cities according to Bloomberg — represents a small 0.2% portion of China’s loan system, says Ge, an assistant portfolio manager with Pendal’s Income and Fixed Interest team.
“Right now Beijing has not been materially vocal on a rescue package, preferring instead that the company quietly sells down its assets and makes investors, suppliers and homeowners whole before quietly exiting the industry.
“But the issue is that Evergrande is unable to deliver on the ‘quietly’ part since they have no credibility in the financial system.
“No one will lend them any money. The only way they can quickly raise cash is to mark down their existing inventory of apartments.”
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Markdowns as a high as 25% have been quoted, says Ge.
But going down this path means the rest of Evergrande’s peer group would have its asset book revalued too –prompting the sell-off we’ve seen so far.
Broader impact for investors
Until recently the contagion was limited to Asia and resource names such as BHP and Rio Tinto, which supply the iron ore for Chinese property projects.
Today, even with the promise of meeting bond interest payments, the risk of contagion has increased as people rotate away from equities and high-yield credit altogether, Ge says.
And the market implication for offshore USD bonds is significant.
“Right now Evergrande USD bonds are trading around 20-25c to the dollar (yuan).
“Default is almost guaranteed at those levels and other domestic peers will invariably get dragged into the sell-off.
“The current Asian high-yield default rate is around 3%. This could rise to 9% if Evergrande and its subsidiaries officially miss their debt obligations going forward.
“In lieu of a policy u-turn from the Federal Reserve, government bonds will likely thrive in this regime.”
Evergrande is just the tip of a large iceberg in China right now, says Ge.
“There is an ongoing vicious cycle that won’t stop until Beijing decides to scale back their social inequality reforms.
“Loose monetary and fiscal can help but it won’t be enough to offset existing headwinds.”
About Oliver Ge and Pendal’s Income and Fixed Interest boutique
Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.
Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.
Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
The invests across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
In this podcast Pendal’s head of government bonds TIM HEXT explains what’s next for inflation, rate cuts and why this environment is favourable for active investors
You can also listen to this podcast on Apple or Spotify
An excerpt from this interview with Pendal’s head of government bond strategies Tim Hext:
As tariff news has died down, markets have come flying back in the last few months.
“But we do have a world now where the US tariff rate on average is around 18%,” observes Pendal’s head of government bonds Tim Hext.
“That is not a world we have seen for almost 100 years, not since World War II.”
It’s an environment made for active investors, says Tim in this new short podcast.
It can take years to understand the full impact of trade tariffs, yet markets tend to be very short-term focused, he says.
“That does present a lot of opportunities for an active manager,” says Tim.
“It gives does give us plenty of good opportunities to add value in active portfolios, and that’s what we’re doing at the moment.”
Listen to the full podcast above or learn more about Tim in his latest Pendal profile interview, as he explains why the case for bonds – and active management – has never been stronger.
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Pendal’s Income and Fixed Interest funds
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
In a new podcast, Pendal’s head of income strategies AMY XIE PATRICK explains the outlook for the world’s two biggest economies and what it means for investors
You can also listen to this podcast on Apple or Spotify
An excerpt from this podcast
Amy Xie Patrick, Pendal’s head of income strategies:
After two days of talks in London, China and the US last week agreed in principle to de-escalate trade tensions.
What happens next is unclear.
But in a new podcast, Pendal’s head of income strategies Amy Xie Patrick explains the outlook for the world’s two biggest economies and what it means for investors.
China is “in a period of healing, but I do see some green shoots”, says Amy. “Property market statistics are generally stabilising.”
But the “ultimate bright spot for the Chinese economy” is its credit impulse – a measure of the change in new credit issued as a percentage of GDP, Amy says.
“It’s still a very credit-thirsty economy. And if the credit impulse of the economy as a whole is starting to stabilise and trend upwards, which is exactly what we see in the data, then that generally bodes well for the overall economic direction. “
On the US, Amy says the “sheer resilience” of its economy through the trade uncertainty incredibly surprising to the market.
Despite sentiment indicators “down in the dumps”, US economic data is not showing significant weakness yet.
For investors, “the better risk-reward in terms of chasing a bit of upside exposure in portfolios is the safe accrual plays in credit rather than say, chasing after equity markets this close to the all time highs.”
Find out about
Pendal’s Income and Fixed Interest funds
About Amy Xie Patrick and Pendal’s Income and Fixed Interest team
Amy is Pendal’s Head of Income Strategies. She has extensive experience and expertise in emerging markets, global high yield and investment grade credit and holds an honours degree in economics from Cambridge University.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. Pendal won the 2023 Sustainable and Responsible Investments (Income) category in the Zenith awards. In 2021 the team won Lonsec’s Active Fixed Income Fund of the Year Award.
The team oversees some $20 billion invested across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.