Home > Resources > Video Library > April 2024 Update from the Australia Trade Floor
Economic and Market Commentary

April 2024 Update from the Australia Trade Floor

Portfolio manager Rob Mead discusses why last month’s important shifts in central bank policies globally make the Australian bond market particularly attractive for investors right now.

More from this section

Read Transcript

Lucy Garth, Head of Marketing, Australia and New Zealand
Welcome to this month's trade floor update with portfolio manager Rob Mead.

Rob, this month we've seen a couple of major moves by central banks globally. How should investors be thinking about these?

Rob Mead, Head of Australia, Co-Head of Asia-Pacific Portfolio Management

Yes, it's a really interesting one. So you're right. Policy makers, economies, markets are all diverging, which is great news first of all, for active managers like ourselves. And we start to put that into perspective.

So first of all, the Swiss National Bank cut rates. The market wasn't really fully expecting that. But it's a very clear reflection that the central bank feels like the tightening that they did for the previous couple of years now is meaning that their inflation outlook is consistent with their objectives.

On the other hand, Bank of Japan hiked rates for the first time since 2007. So complete divergence in terms of central bank activity. One reflecting the fact that inflation is coming back towards target. The other reflecting that inflation expectations are de-anchoring or re-anchoring into positive territory in Japan.

One of the really interesting takeaways from that, though, is that this is the first time for many, many years where we've had both policy rates from central banks and the entire treasury bond universe in positive territory. If you look back at 2020, almost 40% of that index was negative yielding.

So we've moved incredibly far. Maybe we've moved all the way. That remains to be seen. But the bulk of change in terms of interest rate levels is well and truly behind us. For the rest of the developed markets central bankers are really trying to calibrate how quickly their economies are moderating.

The US is a bit of an outlier. It's proving to be very resilient versus some of the other developed markets. I think we can put it down to at least three reasons, but there are multiple reasons why the US economy is more resilient.

So the first one is that fiscal policy has been very generous. We're moving into an election cycle, so expect fiscal policy to still be stimulatory. We also know that the vast majority of households borrow fixed rate in the US, so it takes longer to be impacted by a rising interest rate environment. And the US has also been the epicentre of AI. So some of these reasons mean that the US economy is being more resilient.

But given that backdrop, given the commentary I made around the central banks, our preference for active positioning in interest rates is to be underweight Japan as we see that repricing and then be overweight the markets that are more exposed to floating interest rates like the UK and like Australia.

Garth
So you mentioned Australia. Can we just focus there now and hear your views on the local bond market.

Mead
So for quite a while now we’ve suggested that policy rates at this level would be sufficient to slow the economy and bring inflation back to expectations. That conviction is even greater now that the RBA's moved or removed their hawkish bias, so very neutral at the moment, very balanced, which is encouraging.

We do still see some headwinds and tailwinds for the Australian economy, though. So clearly the headwinds in terms of population growth, the mismatch in demand/ supply in the housing market, keeping the economy reasonably buoyant, offset by sluggish household spending and also the growth trajectory from China being sub-par, which will start to impact iron ore prices. And we're already seeing that.

So some positives and negatives in terms of the Australian outlook. In terms of when the RBA will actually cut, I think that's a less relevant thing for investors because there's no point waiting for that moment.

And I can think of at least four reasons why investors should be doing something right now. So when you think about the first thing: that the most important driver of bond market returns is the starting yield. So investors should stop worrying about the scar tissue that they all feel from 2022 and focus on the returns we saw in 2023. So core bonds generating 5 to 7% returns.

Second thing is that the investment grade credit market in Australia has been incredibly vibrant and new issuers, a broadening issuer base, lots of liquidity and yields that are regularly north of 6%. So a great opportunity for investors to again do something now. Given this starting point in yields, we're also very confident that the negative or the lowly correlated asset class of bonds versus other risky assets will play a really key role in a portfolio context.

And the final thing is that when you think about the cost of de-risking, it's actually much lower than it's been for a long time. So a few years ago it was a decision between “do I de-risk from an asset class that may generate low double digit returns into an asset class that may return zero?” We're no longer making that decision.

Investors are now making the decision to de-risk from an asset class that may be high single digits into an asset class that may be mid to high single digits. So it's a much easier decision for investors to make and they should be making that decision.

Garth
Thanks, Rob.
As you've heard, investors who may be waiting for the RBA to cut rates before investing in bonds again risk missing some attractive opportunities on offer today. If you've got any questions or you'd like more information, please visit our website or contact your PIMCO account manager.

Filters: Reset All

Filters

Close Filters Dropdown

  • Tags

    Reset

    Close

  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close

  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • R
  • S
  • T
  • V
  • W
  • Y
  • Z
Clear
Berdibek Ahmedov
Product Strategist
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Adam Bowe
Portfolio Manager, Australia
Allison Boxer
Economist
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Asset Allocation
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
Yishan Cao
Credit Research Analyst
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Harin de Silva
Portfolio Manager, Special Situations
Pramol Dhawan
Portfolio Manager
Matt Dorsten
Portfolio Manager, Quantitative Strategy
Jason Duko
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Erdonmez
Head of Research, Consultants and Product Group, Australia
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
David Forgash
Portfolio Manager
Preeyam Gandhi
Strategist
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Sachin Gupta
Portfolio Manager
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Jason Mandinach
Head of Alternative Credit and Private Strategies
Kyle McCarthy
Alternative Credit Strategist
Robert Mead
Head of Australia, Co-head of Asia-Pacific Portfolio Management
Lalantika Medema
Alternative Credit Strategist
Mohit Mittal
CIO Core Strategies
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Gavin Power
Chief of Sustainable Development and International Affairs
Lupin Rahman
Portfolio Manager
Paul W. Reisz
Fixed Income Strategist
Graham A. Rennison
Quantitative Portfolio Manager
Steve A. Rodosky
Portfolio Manager
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
John Studzinski
Vice Chairman
Aaditya Thakur
Portfolio Manager, Australia and Global
François Trausch
CEO and CIO of PIMCO Prime Real Estate
Matt Tuten
Portfolio Manager
John Valtwies
Account Manager, Global Wealth Management
Megan Walters
PIMCO Prime Real Estate
Taosha Wang
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Economist
Jerry Woytash
Portfolio Manager, Short-Term Desk
Nelson Yuan
Kirill Zavodov
Portfolio Manager, Real Estate
Mike Cudzil
Portfolio Manager
PIMCO
Seray Incoglu
Portfolio Manager, Commercial Real Estate
Ben Bernanke
Chair, Global Advisory Board
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Get Ahead: Term Out Your Assets (video)
Preparing for Diverging Economic Paths (video)
What to Expect When You’re Expecting Rate Cuts
Exploring the trends and opportunities in private credit today
April 2024 Update from the Australia Trade Floor (video)
Opportune Time for High-Quality Global Bonds

Load more results Load {{cCtrl.fetchResults}} more results