Worried about another rate hike? State Street says high probability multiple hikes are coming
State Street’s fixed income team says the RBA has plenty more work to do.
2022 was one of the worst years on record for bond investors, with double-digit negative returns in ‘core’ bond portfolios. After a thorough beating inflicted by aggressive interest rate hikes from central bankers, investors have asked if 2023 is the year to start adding ‘duration’ back to portfolios to capitalise on higher yields.
Simon Mullumby, Head of Australian Cash and Fixed Income at State Street Global Advisors, has been openly cautious about rushing back into long-duration assets. He had this to say back in March:
“Whilst most would agree that the relative attractiveness of duration has improved, the return journey for bond investors is unlikely to be a smooth one for the simple fact that a 30-year bond bull market cannot be unwound over a 12-month period.”
It has proven to be an astute call, and he still believes it is premature to start adding duration back to portfolios. He thinks the Reserve Bank of Australia has plenty of work to get inflation back to its target range. And whilst many are debating if there are any more hikes to come, Mullumby believes there are multiple hikes to come, pushing the official cash rate above 4.5% in 2024.
In this short video, Simon outlines why he believes a soft landing is likely and that the prospect of a tranche of rate hikes sees him favouring short-duration bonds and floating rate notes.
Key points
- The RBA is in good hands and the rate hikes are slowing the economy
- High inflation and low unemployment suggest the RBA is not done, and more rate hikes are probable.
- Simon believes there is a risk of a further sell-off in bonds and prefers short-duration bonds and good-quality credit over long-duration bonds.
Learn more
Simon actively seeks to invest in interest-bearing investments of high credit quality, rather than investing in a predetermined basket of securities such as an index. For further information on the Floating Rate Fund, please visit the fund profile below.
Managed Fund
State Street Floating Rate Fund
Global Fixed Income
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State Street Global Advisors, Australia, Limited (AFSL Number 238276, ABN 42 003 914 225) (“SSGA Australia”). Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia · Telephone: +612 9240-7600 · Web: ssga.com.
Investing involves risk including the risk of loss of principal. This material is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information. The views expressed in this material are the views of Simon Mullumby through the period ended 18 October 2023 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA Australia’s express written consent.
© 2023 State Street Corporation - All Rights Reserved
6072423.1.1.ANZ.RTL | Exp. Date: 30/11/2024
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Livewire is Australia’s #1 website for expert investment analysis. We work with leading investment professionals to deliver curated content that helps investors make confident and informed decisions. Safe investing and thanks for reading Livewire.
Expertise
Livewire is Australia’s #1 website for expert investment analysis. We work with leading investment professionals to deliver curated content that helps investors make confident and informed decisions. Safe investing and thanks for reading Livewire.
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