Home > Resources > Video Library > June 2022 Update from the Australia Trade Floor
Economic and Market Commentary

June 2022 Update from the Australia Trade Floor

Rob Mead discusses how rate rises will affect path ahead for bonds, property and mortgage rates

MORE ABOUT BONDS YOU CAN BUILD ON

More from this section

Read Transcript

Text on screen: Lucy Garth, Head of Marketing, Australia and New Zealand

Garth: Hi. I'm Lucy Garth. I'm here today with portfolio manager Rob Mead for this month's trade floor update.

Rob, we've got a fair bit to get through, so we'll just get straight into it. The RBA has raised rates now for the second month in a row.

What does that mean for bonds?

Text on screen: Rob Mead, Co-head of APAC Portfolio Management and Head of Australia

Mead: Well, it is topical, that's for sure. So I think there's a couple of really important take outs. And the great news is that on these videos every month, we've been giving that same thematic.

So first thing is the inflation backdrop has to basically result in normalisation of interest rates. What we've seen so far, as you mentioned, 1 x 25 hike and now followed up by a 50. And I think that means there's clearly some urgency to get back to normal. And we'll have a bit of a chat about what we think normal is, but it doesn't really change the destination.

So I keep talking about normal. What is normal? We think normal is going to be something like two and a half percent, give or take, maybe even half a percent, depending on what happens in the real economy and what happens with inflation down the track.

But we're on a pathway to something like two and a half. There's a few commentators out there that were hoping that that wouldn't eventuate. But we do think we're on a pathway there.

Now, the great news for bond investors is that's all fully priced. In fact, it's more than priced. The forward curve suggests that rates could go all the way to three and a half. We don't think we need to go that far. So bond markets have adjusted very early. They're always forward looking, but in this case, they're way ahead of central bank activity, which means investing in bonds is actually a very attractive asset class right now.

Garth: So what does that mean for mortgages?

Mead: Yeah, it's a great question. Mortgage rates I think, again, in our previous discussions we’ve suggested that the forward curve from the bond market suggesting mortgage rates should be five and a half to six and a half. So it's a pretty scary number. We may not need to get that far, but I think for households out there when they're doing their financial plans, they should have those sorts of numbers in the back of their minds because that is possible.

And I think to your point about mortgage rates is the property market has barely adjusted so the bond market started moving in the third quarter of 2021. It's again, as I mentioned, it's very forward looking and a lot of that price action’s already happened with the property market and some other markets, especially markets that were dependent upon zero interest rates, they're all much more vulnerable to repricing.

Garth: So within that context, Rob, how are we positioning portfolios?

Mead: Yeah, it's a great point and I think the most important takeaway is that with interest rates having moved already, again, as we're mentioning bond markets being forward looking, what we started to do is cover our underweight to interest rate exposure or duration when we think about US ten year treasuries, around 3%, Commonwealth government bonds in the mid threes in the ten year part of the curve, three and a half percent priced in the cash rate.

All these things suggest it's time to remove any structural underweight to bonds. And so if there are any investors out there that are still underweight bonds, now's the time to think about moving back to target. At some point moving above target.

We do think there's still this disconnect between risky assets and the bond market. It's arguably the biggest disconnect I've ever seen in my career. So when you think about bond markets already starting to move back in Q3 of 21, the property market is only just started to roll over now.

Equity markets are a little bit more price, but nothing dramatic. We’ve seen some activity in tech stocks and other things that were really reliant upon very low interest rates to justify their valuation, all those things are in play.

But again, as we keep reiterating the bond market has been priced for this for a while. When it comes to credit assets, we think there's some attractive opportunities there, a little defensive in terms of we want to make sure that the underlying cash flows are very robust.

But when you think about in the market, since we last spoke a major Australian bank issuing tier two debt north of 6%, these are now very attractive opportunities for portfolio construction.

Garth: Thanks Rob, and thanks for joining us. If you've got any questions or would like any more information, please visit our website at pimco.com.au

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
  • Q
  • R
  • S
  • T
  • V
  • W
  • Y
  • Z
Clear
Berdibek Ahmedov
Product Strategist, Equities and Multi-Asset
Joshua Anderson
Portfolio Manager, Income and Asset-Backed Securities
Del Anderson
Credit Analyst
Robert Arnott
Founder and Chairman, Research Affiliates
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, Multi-Asset Strategies
Esteban Burbano
Fixed Income Strategist
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
Josh Davis
Global Head of Risk Management
Pramol Dhawan
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
Gregory Hall
Head of U.S. Global Wealth Management
Mary Hoppe
Account Manager
Ray Huang
Portfolio Manager, Real Estate
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
Raji O. Manasseh
Equity Strategist
Jason Mandinach
Head of Alternative Credit and Private Strategies
Samuel Mary
ESG Research Analyst
Kyle McCarthy
Alternative Credit Strategist
Robert Mead
Head of Australia, Co-head of Asia-Pacific Portfolio Management
Mohit Mittal
Portfolio Manager, Multi-Sector
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Gavin Power
Chief of Sustainable Development and International Affairs
William Quinones
Product Strategist
Lupin Rahman
Portfolio Manager
Paul W. Reisz
Fixed Income Strategist
Graham A. Rennison
Quantitative Portfolio Manager
Libby Rodney
Steve A. Rodosky
Portfolio Manager
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Senior Advisor
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
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Cathy Stahl
Global Head of Marketing
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
John Studzinski
Vice Chairman
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
Aaditya Thakur
Portfolio Manager, Australia and Global
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Jessica K. Tom
Senior Credit Analyst
François Trausch
CEO and CIO of PIMCO Prime Real Estate
Jerry Tsai
Client Solutions and Analytics
Matt Tuten
Portfolio Manager
John Valtwies
Account Manager, Global Wealth Management
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Taosha Wang
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Economist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Jerry Woytash
Portfolio Manager, Short-Term Desk
Nelson Yuan
Kirill Zavodov
Portfolio Manager
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
Global Bonds: An Attractive Solution for Today’s Markets
Sustainable Development Goals at PIMCO
Forecast Favors Fixed Income
Positioning Portfolios for 2024
November 2023 Update from the Australia Trade Floor
Higher Yields Today Create Opportunity

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