Insights

Since our last relative value note, spreads have continued to compress in Australian listed bank hybrids. This is largely due to a lack of supply and increase of investors allocating to fixed income. Whilst spreads are compressing, many investors are...

Staying ahead in the investment landscape is key for wealth practices who want to deliver strong returns for their clients, and in turn grow and scale their business. Learn how you can empower your wealth practice with our dynamic fixed...

Duration is back In late 2011 the US 10-year bond yield went below 2% for the first time in the past 100 years, and for the next decade rarely got above that level, and indeed fell to around 0.50% during...

Movement in spreads Hybrids (or ‘additional Tier 1’ ‘AT1’) as they are often referred to, sit at the bottom of a bank’s debt capital stack and one rung above common equity. They are designed to have characteristics of both debt...

Direct Bonds Activity & Flow As yields have increased, investors are looking more at Fixed Income to provide income and diversify their portfolio. With the many risks challenging the outlook for equities, higher yielding securities are proving attractive ways to...

A sharp rise in interest rates over the past year has seen many rate sensitive sectors decline in value with REITs being one of the hardest hit. As we approach the end of the rate hike cycle and bonds of...

Fixed Income is continuing to gather increased attention from investors due to uncertainty in equity markets and bond yields reaching their highest levels in the last 10+ years. Some parts of the market have performed better than others in terms...

Australian RMBS is an extremely well performed asset class both in terms of credit performance, but also the return available for the credit risk taken. No tranche of an Australian RMBS has ever passed a loss to bondholders at any...

Banks and Insurers are funded by groups of distinct groups. The bondholders with the least chance of not being repaid should a bank get into difficulty are usually those earning the lowest returns and those with the highest likelihood of...

On Melbourne Cup day APRA released a letter to authorised deposit-taking institutions (ADIs), general insurers and life insurers (together ‘insurers’) to reinforce the existing prudential requirements for additional Tier 1 capital or Tier 2 capital instruments. This letter was only...

Investors who took the decision to de-risk their portfolio in 2021 by investing in fixed rate bonds have seen unwelcome revaluation losses in their portfolios. These transitionary “losses” are almost totally related to opportunity cost rather than any likelihood they...

Tuesday’s shock announcement underscored what can be viewed as a pivotal turning point in the mentality and approach of the RBA, where the RBA has now transitioned into “inflation fighting mode” – seeking to “front load” rate hikes and chart...

The shape of the government bond yield curve is an incredibly powerful tool for determining the forward looking price of money. The shape – the relative flatness or steepness – can also be used as a gauge of inflation expectations,...

Last week, I had the opportunity to speak at a portfolio management conference held by IMAP – Institute of Managed Account Professionals – on the topic of embedding ESG into fixed income portfolios, specifically, AUD fixed income portfolios. In today’s...

Yesterday morning (in our time zone), the Federal Reserve raised their cash rate by 25bp to 0.25-0.5% p.a. What caught our eye was the more hawkish dot plot, where the median dot was higher than the market’s forecast, a hawkish...

Credit spreads have endured a difficult start to the year, widening on the back of the same forces driving most risk assets - interest rates and the Russia/Ukraine conflict. Whilst investment grade issuers remain well capitalised, rising interest rates have...

Fixed income assets are likely to be influenced by divergent forces in 2022, where COVID-19 variants and surging infection rates will elicit risk-off investing and the demand for safe haven assets such as bonds as well as specific currencies such...

In March and April we made a fairly astute call that was out of consensus at the time, that mortgage rates were going to rise due to the evolving economic circumstance, putting margin pressure on mortgage lenders. At the time...

The RBA met for their 10th and 2nd last policy meeting of the year, yesterday, deciding to play things safe by bowing to market forces and following recent actions and commentary from other global central banks. Whilst they’ve changed different...

For the second time this year, we’re experiencing a bond market sell-off. However, this time around, mostly focused on short term yields rising quicker than longer tenor bond yields . The market term for this is a “bear flattener”. In...

Yesterday, we held our quarterly Mason Stevens Credit Fund webinar, where the main topics of conversation were regarding inflation expectations, rising bond yields and a steeper yield curve, and how to actively manage fixed income exposure to benefit from a...

As interest rates have continued to move lower over recent years, a product of a two-decade long period of disinflation and the COVID-19 pandemic, the question has been continually asked – do government bonds still have a place in portfolios?...

Jesse Imer, Fixed Income Strategist, breaks down the myth that yield cannot be found within Fixed Income within the current low interest rate environment, and why investors may be overlooking the benefit of pairing of investment-grade credit bonds, with active...

Credit spreads represent the difference in yield between the relevant benchmark (usually government bonds) and the yield of another non-government debt security of the same maturity. As interest rates have gone to record lows, investors have begun to allocate more...

It’s never a bad time to have a conversation about lowering the debt servicing costs of an entity, whether it’s a household, a business or our Federal government. At the Federal level, gross government debt has grown over 200 billion...

What may be evident at this point in our Risk-Off series is that for each opportunity we have to make a risk management decision, there is often a corresponding opportunity to make gains within our portfolios. Touching on risk management...

For close to seventy years, government issued fixed-rate bonds have provided satisfactory levels of income at relatively low levels of risk. As interest rates have declined over this period, the income became less and less, an the diversification benefits less...

Last week’s Federal Budget projected that Australia would run budget deficits for the next ten years, until 2031/32 fiscal year. With this, the government has changed their rhetoric of balanced budgets and fiscal conservatism, to higher portion of spending and...

Inflation-linked bonds are a specific way to hedge against both expected and unexpected inflation increases in the future, as their capital value and coupon payments are explicitly linked to the Consumer Price Index. As inflation expectations have surged in the...

The vast majority of Australians pay variable (floating) rates on their residential home loans, which has been beneficial for the majority of the last three decades, as mortgage rates and other borrowing costs have trended lower. However, if interest rates...

Government bond auctions are a relatively unknown part of international finance, yet they have wide ranging impacts for government funding costs, taxation, bond valuations, equity valuations, opportunity cost and asset allocation. They’re largely unknown because as long as they work...

Over the past 100 years, financial markets have developed into the beast we now know – offering exposure to anything and everything, ranging from a simple share of Apple to complex derivatives on the Laotian Kip (currency). As our product...

There has been a lot of hype over the last few weeks regarding the sell-off in sovereign bond yields, most of it fixated on longer-duration government issued fixed-rate bonds of maturities 7+ years from now (2028 or later). Due to...

Bond markets are not meant to be interesting. Bond markets are where governments and corporates can raise money via borrowing, to finance their operations, projects and objectives. Bond markets are meant to be orderly and stable, a place of mathematics...

There was once a period of time where government bonds provided the desired income that investors required to meet their objectives. I’m talking about when “govies” used to yield 4% p.a. or higher, basically any time before the last 10...

Yesterday, I had the opportunity to speak on a panel discussion hosted by the Institute of Managed Account Professionals (IMAP) regarding what zero% interest rates mean for managed account investing, and how we should invest in defensive and income bearing...

Governments’ budget proposals are just that – proposals – meaning they are subject to amendments. In implementation, they can differ greatly from their original plan. They are based upon assumptions such as tax rates, unemployment figures, government revenue (tax receipts),...

That’s where I first saw Mary, On that roadside picking blackberries, That summer I turned a corner in my soul, Down that red dirt road               Brooks and Dunn (2003)   Some days my song references and links to my...

And it pains me so much to tell you, That you don’t know me that well…               Nelly Furtado (2000) [Today is part 1 in a two-part series regarding bank funding and capital – today’s topic being about funding and...

Times are rough, but we can make it, We can work it out How can we be lovers if we can’t be friends? How can we start over if the fighting never ends?                 Michael Bolton (1989)   This week...

An August summer night, Soldiers passing by Listening to the wind of change                 Scorpions (1990)   With the publication of ANZ’s Q3 results last week, we closed the reporting season for our Big Four Major banks – ANZ, Westpac,...

“Just a small-town girl, Livin’ in a lonely world, She took the midnight train goin’ anywhere”                 Journey (1981) A question we increasingly receive at Mason Stevens is if bonds are still a benefit to portfolios. The latest academic research...

“Who’s to blame for the lives that tragedies claim, No matter what you say, It don’t take away the pain”                 P.O.D. [2001]   In Australia, we’ve been relatively lucky that our Commonwealth government has given Australians clarity of government...

“So shiny, my polyester girl”                 Regurgitator [1997]   Real yields on 10-year US Treasuries hit -1% on Friday – a first for American history – indicating that an investor lending money to the US government (buying their bonds) would...

“I’m an easy read but I ain't no open book, Got a knack for making things harder than they look” Luke Combs (2019) Something the RBA is particularly good at is making their balance sheet transparent so that market watchers...

“Funny the things you thought you’d never miss, in a world gone crazy as this” Tim McGraw & Faith Hill (2014) This may be new news – but financial markets around the world are in varying stages of transitionary periods...

“Come on, come on, listen to the moneytalk” ACDC (1990) It has been a point of interest that Australian bond markets stick out in attractiveness compared to global peers, starting with our AAA-rated sovereign issued bonds, yielding higher than comparable...

“Hey now, hey now, don’t dream it’s over” Crowded House, 1986 Last week the ABS released Q1 2020’s GDP figure, telling us what we already knew, that economic output declined in Q1 this year. Australia has gone 114 quarters without...

Understanding inflation is crucial to investing because inflation can reduce the value of investment returns. Inflation impacts all aspects of the economy – be it household spending, business spending, employment rates or interest rates. Inflation is a sustained rise in...

On Thursday evening, the heads of the Reserve Bank, APRA and ASIC gathered together to host a webinar regarding the Australian financial services sector. The most interesting topic is APRA chairperson Wayne Byres noting it would not be a concern...

Over the weekend I found myself reading an excerpt from Thomas Macaulay, a British historian in the early 1800's. In 1830, T.B. Macaulay wrote in reply to the pessimists of his day: “We cannot absolutely prove that those are in...

Today I wish to channel Chubby Checker’s 1960s hit Limbo Rock. As government bond yields head towards recent lows and some countries (ergo: Australia) are at all-time lows, it’s time to explore the possibility of long-term bond issuance as a...