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Event Date |
Thu Jun 6 AEST (6 months ago)
In your timezone (EST): Wed Jun 5 10:00am - Wed Jun 5 10:00am |
Location |
TBA
Sydney, North South Wales, Australia |
Region | APAC |
The multi-decade bull run of bonds came to a swift end in 2022, when the Reserve Bank of Australia (RBA) decided to increase the interest rate for the first time since 2010. In May 2020, the RBA kicked off a series of hikes that included 13 rate increases. A further 25 basis point increase might still be on the cards, according to the bank’s December minutes, if inflation pressures don’t show signs of slowing down in 2024.
Yet, the RBA left the cash rate unchanged in December and market participants seem to pencil in rate cuts next year, rather than a further increase. The expectation of rate cuts is largely based on developments in the United States, where in mid-December the Federal Reserve flagged it could implement up to three rate cuts in 2024, as the inflation rate was easing and the economy showed lacklustre activity levels in recent months.
In Australia, the RBA said inflation was increasingly demand-driven and there was a risk it could remain above its 2 – 3 per cent target band beyond December 2025. But in making its next rate decision, the bank will also take international developments into account, the minutes read.
A reduction in interest rates would be a boon for investors that have stocked up on bonds in 2023, as yields became attractive again. But the prospect of a new rate cutting cycle would also make it less attractive to invest in these defensive assets going forward.
• What does this heightened uncertainty mean for institutional investors and their fixed income portfolios?
• Which part of the curve is most attractive at this stage of the cycle?
• What type of fixed income instruments thrive under these conditions?
What we perhaps can say is that the market conditions for fixed instruments look more gentle than they have been over the last 18 months.