Fixed Income

Charlie Jamieson, co-founder and chief investment officer at Jamieson Coote Bonds (JCB)spoke recently at Praemium’s  Key Market Drivers event, blaming much of the market under-performance of 2022 on fixed-interest markets.

According to Morningstar, an Australian recession is possible but highly unlikely. It thinks the Australian economy is “in great shape,” with low unemployment and high real GDP recorded in the March 2022 quarter.

Following the Reserve Bank of Australia’s decision to increase the cash rate by 50 basis point this month, the big banks have quickly raised interest rates on their mortgages, as well as interest rates on some savings accounts.

Investment director at Capital Group, Matt Reynolds, outlines four uncertainties that are influencing equities markets at the moment.

Whilst there are growing signs that inflation is moderating around the world, whether in the US, UK or Australia, some 125 of the world’s central banks are current in the process of tightening monetary policy.

It’s been two years since Covid-19 reared its ugly head, sweeping fear and panic across global markets and forcing central banks to release massive amounts of stimulus to safeguard against any further deterioration.

Bond markets have effectively become the ‘freight train’ of a long series of other assets, with a surge in bond yields pulling nearly every other asset class lower.

From Covid to conflict, all it took was just a few weeks for the market to shift its attention to the unfolding crisis in Ukraine and away from the pandemic.

“We recently cut risk but stick with stocks over bonds for now. Equity prices now reflect much of the worsening macro-outlook and hawkish Fed” were the latest comments from the Blackrock Investment Institute in their weekly research note.

The Reserve Bank of Australia officially joined the hiking party this month, and while the implications for Australian homeowners and businesses is important, it has little impact on the global economy.

In their latest quarter fixed income outlook, titled ‘Investing Through Inflation and Growth Uncertainty’ global asset manager Neuberger Berman has flagged somewhat of a non-consensus view on the outlook for inflation, growth and fixed income assets.

The classic way of thinking has been to ditch bond funds as interest rates rise. Why? Because as rates rise, bond prices have an inverse relationship, and drop in value as newer bonds with higher yields become more attractive. Sounds about right?