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

February 2024 Update from the Australia Trade Floor

Portfolio Manager Adam Bowe discusses why it’s important to construct portfolios that can deliver resilient income amid falling interest and term deposit rates

More from this section

Read Transcript

Text on screen: John Valtwies, Account Manager

Valtwies: Welcome to the first trade floor video of 2024.

Well Adam, in 2023, I think it's fair to say investors were afraid of the bond market, afraid of the possibility of another sharp increase in interest rates.

Just to recap, can you distill what took place over 2023?

Text on screen: Adam Bowe, Portfolio Manager, Fixed Income, Australia

Bowe: Yes, you're right. Investors were fretting about the bond market. I think, there's always a level of interest rates that stops people borrowing and spending. I think in 2023, central banks in most parts of the developed world reached those levels and so when you, despite volatility, when you look point to point, ten year government bond yields in Australia and in the US started close to where they finished around 4% and despite the cash rate.

So the RBA and the Fed lifting policy rates by another 100, 125 basis points, the impact on bond returns is pretty muted. That was largely expected and priced into markets.

So when interest rates are more stable, you tend to earn your yield or carry in a bond fund.

So for high quality core bond funds, it doesn’t matter if it was Australian ag composite style or global aggregate hedge to Aussie or investment grade credit hedged to Aussie dollars, returns of around 6%. It’s pretty reasonable for a year when the cash rate averaged in the high 3% area.

So we've been saying it for a couple of quarters. The opportunity in core bonds hasn't

looked this attractive in over ten years.

Valtwies: So I guess with that backdrop and thinking about the year ahead now, we've already seen the Fed announced they're on hold for now.

The RBA as well for now, but we know they're likely to be patient. With that in mind and the prospects for a soft landing, or that's what the markets are certainly pricing in, what should investors focus on this year?

Bowe: We do think that most central banks around the developed world have reached or really close to reaching their peak in policy rates this hiking cycle. And in fact, as we navigate 2024, interest rates in most parts of developed world will start to come down.

So why do we think that? Starting point of policy is really tight. Inflation is moving back towards

target and unemployment rates are drifting higher.

For context, if we just focus on Australia, for a minute. If we look at the percentage of income

households are having to dedicate to paying interest on their mortgage and paying tax to the government, it's never been this high.

So both monetary and fiscal policy are really tight here, which explains why household spending has been so sluggish.

So certainly expecting as we move through 2024 central banks will start to bring interest rates down. So for investors, they need to start turning their mind to portfolio construction, in an environment of declining interest rates.

So for context, in the US, the markets pricing the Fed to lower interest rates by about 2% over a couple of years. About half that in Australia.

So the challenge for investors that have built up large piles of cash in term deposits is, how do I maintain resilient levels of income in my portfolio as these start to reset and roll off at much lower levels of interest rates?

So that's the challenge.

The opportunity is, the flip side to the opportunity we had in 2020, which was we got the chance to lock in low rates on our mortgages. 2024 the opportunity is we get to lock in high interest rates on our income producing assets before they start to come down and, for core bond funds,

we think it presents the most compelling opportunity for investors to do that.

The starting yield’s around 5%, and they have daily liquidity.

Valtwies: Well, thanks, Adam.

And some important takeaways there for the year ahead as we move into an environment of lower interest rates, now is certainly the time to be allocating to bonds with starting yields at 5 to 6%.

To learn more, please get in touch with 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
Ben Bernanke
Chair, Global Advisory Board
Seray Incoglu
Portfolio Manager, Commercial Real Estate
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
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
Today’s Historic Opportunity in Actively Managed Bonds (video)
Celebrating International Women’s Day

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