US and local bond yields are hitting multi-year highs. Why is it happening and what’s next?
Resilience in the US economy is the main factor, says Pendal’s head of bond strategies Tim Hext.
That’s due to the dominance of fixed-rate loans there and Joe Biden’s big-spending government.
Meanwhile the Australian economy is holding up better than expected and the fixed-rate cliff hasn’t impacted as much as people thought.
“I think it’s a good time to be buying bonds,” says Tim. “At the moment you can buy state government debt at 6% yields.
“The cash rate is likely going to 4.35, but I don’t expect it to be well above 5% for the next decade or two.”
Bond investors are rewarding in two ways, argues Tim: the return and thei insurance role.
“If things were to get out of hand, if you get a collapse in equities, if you see major geopolitical disruptions in this heightened risk environment, then bonds should perform their defensive role.
“I do think they’re cheap insurance.”
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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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