Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. MARKETS
June 03, 2020 08:43 AM

Australia’s bond market fired by defiance to go subzero

Bloomberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    reserve_bank_australia_1550-main
    Bloomberg
    The Reserve Bank of Australia’s reluctance to set bond rates below zero is helping draw big banks.

    One central bank's refusal to contemplate negative interest rates is helping set it apart from developed peers and stoking interest in its world-beating bond market.

    The Reserve Bank of Australia's reluctance to contemplate life below zero is helping draw the likes of PGIM and J.P. Morgan Asset Management to the nation's $482 billion sovereign bond market. Australia's 10-year bond yield discount to Treasuries flipped to a premium in March as the Federal Reserve slashed borrowing costs, spurring bets U.S. rates would turn negative next year.

    Australian bonds are "competitively well supported and they represent a good storehouse of value that requires less of a leap of faith than most developed markets" to invest in right now, said Robert Tipp, head of global bonds and chief investment strategist at PGIM Fixed Income, which oversees $868 billion. Investors should consider going "long Australia on a core basis."

    A gauge of Australian bonds is the best-performing among Group of 10 peer equivalents, showing a 9% total return for the second quarter to June 1, according to Bloomberg Barclays indexes. The nation's 10-year yield was trading at 0.97% on Wednesday vs. 0.7% for equivalent Treasuries.

    Anchoring demand for Australian bonds is the RBA's pledge to maintain benchmark 3-year yields at the 0.25% cash rate. That's in stark contrast to regional neighbors New Zealand, where the central bank is openly discussing the possibility of negative rates and Japan where they have been below zero since 2016.

    "QE measures and the RBA's posturing on negative rates are helping to keep yields positive and that could be attractive for some," said Raymond Lee, a money manager at Kapstream Capital who is long 3-year Aussie bonds as a hedge for riskier credit bets. "Australia has a yield advantage compared to places like New Zealand, which is open to the idea of negative rates, or even the U.S. where the Fed is keeping yields low."

    See more of P&I's coverage of the coronavirus

    The RBA's yield control may be particularly attractive to investors cornered by $11.7 trillion of negative-yielding debt, according to John Vail, chief global strategist of Nikko Asset Management in Tokyo.

    "In a way, yield-curve control represents almost unlimited firepower," Mr. Vail said. "It can be a lot less disruptive to the banking systems and even to the exchange rate compared to other tools such as negative rates — some people will be drawn to that."

    Australian bonds stand out particularly against New Zealand where swap markets started pricing the chance of negative rates in 2021.

    "Australia's long-end offers some value," said Kaspar Hense, portfolio manager at BlueBay Asset Management in London. "There's not much room for investors to move especially in small, AAA-rated countries while looking for yield."

    Foreign investors own over 50% of Australian sovereign debt, and there are signs demand is rebounding after a record sell-off in the first quarter during the worst of the virus-induced market panic.

    Japanese investors snapped up a net ¥107.9 billion ($1 billion) of long-term Aussie debt in March to mark their biggest purchase since June 2019. In May, Australia sold A$19 billion ($12.3 billion) of bonds, a second record-breaking deal in two months as the government seeks to fund a A$130 billion stimulus package.

    To be sure, not everyone is convinced Australian securities present the best bang for the buck.

    The country's economic fortunes remain closely tied to China and brewing tensions between the two nations may see Aussie assets come under pressure, according to Brandywine Global Investment Management. As Australia leads calls for a probe into the origin of the coronavirus, volatility could rise and spur fresh sell-offs, said Jack McIntyre, portfolio manager in Philadelphia.

    "I do worry that Australia is poking the China bear," he said. "They are at the front line of U.S.-China tensions as well."

    It's a coin toss on how Aussie assets will perform if the tensions reach boiling point, according to Kapstream's Mr. Lee.

    "China is Australia's biggest trading partner and if it affects fundamentals here, that would have an impact on rates," Sydney-based Mr. Lee said. "Ultimately though I think a lot will depend on what's happening between the U.S. and China — risk-off sessions could lead to bids in Treasuries and benefit Australia."

    Related Articles
    U.K.'s first negative-yielding bond sharpens focus on BOE
    With global bond yields at record lows, traders buy in China
    World's pile of negative debt surges by the most since 2016
    Recommended for You
    SP500June2022_i.jpg
    Stock doomsayers vindicated in historic first half
    Market-ticker-red2022_i.jpg
    Stocks crushed as recession jitters jolt trading
    ONLINE_180509969_AR_0_TABEPHATBADK.jpg
    Goldman to pull out of most SPACs over threat of liability
    Strong Demand Drivers Underpin Private Credit
    Sponsored Content: Strong Demand Drivers Underpin Private Credit

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit