“By the time the Reserve Bank is actually tightening rates, the market has already factored that in. And that’s what we’ve seen this year,” says Tim Hext, head of government bond strategies at Pendal.
“But I think it’s fair to expect bond yields to finish next year slightly higher than where they are now.
The market is looking for official rates to be around 75 basis points higher,” he says.
Hext thinks that is too much.
“With that in mind, bonds are not bad value around the current levels. And of course, bonds are a defensive asset. It’s not the central case scenario but if everything goes wrong, bonds will perform that function,” he says.
“Are you going to make a lot of money out of bonds next year? Probably not. But will they be a good defensive asset given where yields are. The answer is yes.”
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Pendal’s Income and Fixed Interest funds
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.
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