THIS WEEK has been relatively quiet for bond markets, despite an attempt at excitement around China.
I learnt long ago that little happens by accident in China.
The government has the ability and the smarts to control what is going on. Letting Evergrande wobble is more about sending a message than a misguided step that will send the economy into freefall.
Of course the usual chorus line of doomsdayers have lined up to predict just that.
I am not one of them.
Maybe eventually they do stumble, but you’ll go broke betting on it long before then.
Our attention is more focused on what is happening domestically — in particular the how and when of re-opening in NSW and Victoria.
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The area of concern for us is how unvaccinated workers are treated.
The concern is less ethical — I will leave readers to their own views — but what it means for the workforce.
If one in ten workers end up unvaccinated, whether for health or personal reasons, their potential exclusion will have a significant impact on the supply side of the economy.
Most employers are currently awaiting government guidance, but until rapid testing is widely available it seems many will be banned from working.
The demand side of the economy is likely to return quicker than the supply side.
We are increasingly confident that 2022 will see higher — not lower — inflation and the RBA will be tested on its benign view.
Wages should also pick up faster.
Future inflation as measured by markets remains stuck around 2%, which to us provides an opportunity.
Tim Hext is a portfolio manager with Pendal’s Income and Fixed Interest team (formerly Bond, Income and Defensive Strategies).
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. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
With the goal of building the most defensive line of funds in Australia, the team oversees $A22 billion invested across income, composite, pure alpha, global and Australian government strategies.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
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