Spectrum Insights - The worst of both worlds

Australia’s RBA has its foot on the accelerator while the global bond markets are tapping on the brakes. Just when Australia’s economy could do with some stimulus it faces some headwinds from abroad. Rising bond yields internationally are spilling over into our bond markets. This hurts fixed rate bond prices. It also makes borrowing more expensive. Mortgage stress from within our highly indebted households in Australia is already on the rise. To add to this Australia’s “AAA” rating is under pressure and there is a lot to be worried about when investing in a generic Australian dollar (A$) bond fund. At Spectrum we are tackling this by 1) investing mainly in floating rate notes – reducing the impact from rising fixed rate bond yields or falling prices 2) avoiding bonds from issuers that rely on residential property development and 3) tilting our weighting towards overseas issuers of A$ bonds. The aim is to protect investors’ capital while delivering reasonable income for 2017.