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US shutdown prompts Treasury to activate fallback index
The United States federal government shutdown that’s threatening to freeze October’s inflation report is forcing the Treasury to use a fallback index for TIPS pricing for the first time, which would create short-term pricing uncertainty requiring traders to adjust their calculations. The U.S. Treasury is planning to deploy a workaround to compute the index in the absence of official data that underpins the US$2.1 trillion market for inflation-protected bonds for the first time since their launch in 1997. The absence of official inflation data is creating a headache for Treasury Inflation-Protected Securities (TIPS) market participants, as the value of those bonds, which investors use to protect their capital from inflation, hinges directly on the index. While TIPS pay a fixed interest rate, the interest is calculated on a principal amount that rises with inflation and falls in periods of deflation. How much the principal rises or falls is determined by the CPI index. TIPS yields, also known as ‘real yields’ because they discount inflation, have increased slightly over the past few days, which is understood to reflect uncertainty over their pricing in the absence of CPI data. "There's definitely uncertainty in t
Bonds
Investors pivot to defensive credit as bond yields rise
With markets looking expensive and credit spreads tightening, major investors have been actively reducing their exposure to riskier corporate debt amid concerns that recent market rallies have left precious little buffer against potential downturns. In light of limited additional reward for taking on additional risk, as credit spreads narrow, asset managers are unsurprisingly shifting toward more defensive strategies. According to Chris Iggo, CIO at AXA IM, who manages over €465 billion (A$830.6 billion) in fixed income, there’s been an increase in long-term bond yields and evidence that government bonds have cheapened relative to other assets.Greater risk premium in government bondsWhat's the widening gap between government bond yields against the swaps market is telling us, adds Iggo is there’s more of a risk premium in government bonds, with government bond yield curves continuing to steepen. Iggo currently favours short-duration strategies across different fixed income asset classes, including high yield, investment grade credit, government bonds and infrastructure-linked bonds. “Although we’ve got to more normal levels in bond markets, there’s more to go in terms of that yield curve steepening,” said Iggo. “W
Bonds
Kangaroo Bonds attract diversifying investors
Due to a perfect calm of attractive yields, a resilient Australian economy and evolving market infrastructure, Australian dollar-denominated bonds from international issuers - aka kangaroo bonds – are playing an increasingly important role in global fixed income. Demand for kangaroo bonds traditionally comes from investors in Australia and the Asia Pacific. However, the local market is increasingly attracting global attention as the world looks to diversify away from United States dollar assets, while growing investor participation is also improving A$ liquidity. While full-fledged de-dollarisation appears unlikely, the U.S. dollar will likely be weaker and more volatile. As a result, investors who work in treasuries or asset liability management roles are looking to manage risk by spreading their investments well beyond U.S. dollar assets. While this has led to increased interest in a basket of different currencies, including the euro and Japanese yen, it’s the Australian dollar that’s emerged as a particularly attractive alternative to the U.S. dollar.Goldilocks momentBuoyed by three rate cuts by the Reserve Bank of Australia (RBA) this year, the local yield curve remains steep, and this has positively impacted t
Bonds
Bond flash: Estate planning & investment bonds
While superannuation is typically the vehicle of choice when it comes to growing wealth, it makes for a lousy structure through which retirees gift assets or property to family members after their death - aka making a bequest. But while the tax on a super death benefit can be onerous – as much as 17% on taxed elements and 32% on untaxed elements – this doesn’t seem to stop retirees falling into this trap. According to research by life insurer and pioneer of investment bonds in Australia, Generation Life, 34% of Australians use super as a vehicle through which they leave their legacy for loved ones. Whether they were simply unaware of this outcome or failed to act on it before they died, allowing the state to become a co-beneficiary along with loved ones is not something anyone, no matter how wealthy, should be comfortable with. Research by Generation Life also reveals that while one in five Australians want to pass their legacy to their grandchildren, it isn't necessarily about simply wanting to give the younger generation a financial head start.Guardrails around contestabilityAccording to a director at Generation Life Araujo Felipe, retirees can be equally concerned about possible relationship breakdowns among their a
Bonds
Bond flash: DAX-listed Vonovia SE launches A$ bonds
With six to twelve-month term deposits from the big four banks now only averaging around 3% as the market braces for further rate cuts, there’s growing investor appetite for Australian dollar-denominated, investment-grade credit, which has shifted from yielding over 6% a few months ago, to currently offering 5%-6%. With this in mind, issuers are capitalising on growing local investor demand by continuing to bring new offerings to market. A BBB+ rated bond is preparing to launch with two tranches, a 7-year and a 10-year, with fixed coupons of around 5.3% and around 5.8% respectively. Securing an income from a quality issuer of over 5.5% should serve investors well in current market conditions, especially with these returns becoming increasingly difficult to achieve as rates continue falling. For this reason, the 10 year tranche is expected to be the most popular. The issuer is DAX-listed Vonovia SE - Europe’s largest private residential real estate company, headquartered in Bochum, Germany – which owns and manages a vast portfolio of over 565,000 residential units across Germany, Sweden, and Austria, with a total property value of approximately €97.8 billion (A$174.7 billion). This will be their first A$-denomin

Bonds
Trump buys over US$103m in bonds since inauguration
New documents show that United States President Donald Trump has bought at least US$103 million in corporate and municipal funds since taking office in January. The new filings from the Office of Government Ethics show that Trump started his spending on day one after being sworn in as President on 20 January. It includes debt sold by companies, local governments, and entities that could be directly affected by his sweeping agenda. All up, Trump made around 690 purchases from 21 January to 1 August. Trump’s active trading is unprecedented for a U.S. President and puts him in a position to benefit or lose out on any of the bonds he purchased. "Ultimately, the president is not involved in these transactions," a senior administration official told NBC News. "They’re managed completely independently of him." While the filings don’t provide exact amounts, they do provide dollar ranges for each transaction and do not show any sales by Trump. Some purchases include bonds from megabanks, Morgan Stanley, Wells Fargo and Citigroup worth at least US$100,000. These purchases come as he considers the replacement of the Federal Reserve chair, Jerome Powell, whom he has been openly critical of. He also purchased at least U
Bonds
Bond flash: ANZ’s 20yr debt bullet draws A$3.1bn in bids
With the ASX200 nudging new all-time highs, investor interest in de-risking is being reflected in the growing interest fixed fixed-income offerings. Unsurprisingly, bond issuers are only too keen to ‘feed the ducks while they’re quacking’ and are responding in kind - which has seen a constant stream of new products come to market. Last week, ANZ Bank (ASX: ANZ) surprised the market, marketing the first of its kind – a 20-year Tier 2 subordinated debt bullet: A one-off maturity date after 20 years. It was part of a dual tranche offering along with a 15-year, non-call 10(15NC10) tranche. Unsurprisingly, the response was overwhelming with bids exceeding $5.5 billion, with ANZ issuing $1.5 billion – $750m for each tranche. Investors preferred the 20-year bullet, which garnered $3.12 billion in bids. ANZ revealed that more than 100 investors competed for the bullet alone. Margins tightened from 180 basis points (bps) over semi-quarterly swap for the 15NC10 and 200bps for the bullet to 168bps and 180bps, respectively. The bullet was especially attractive with the yield equivalent to 6.17%. The deal extends the major bank subordinated debt yield curve and paves the way for further long-dated bullet issuance.
Bonds
Bonds to consider in wake of RBA rate cut
As was widely expected, the Reserve Bank of Australia (RBA) cut the official cash interest rate by 25 basis points on Tuesday to 3.60%. This marks the third rate cut of 2025 and the lowest level since April 2023. While the cut was by no means unexpected, what took the market by complete surprise was the tough-love narrative dished out by the central bank’s Governor Michele Bullock. In what was tantamount to the classic kiss-kick manoeuvre, Bullock followed up on the welcomed cut with a grim warning Australians to prepare for chronically lower growth in their living standards. The RBA Board has taken a scalpel to its productivity growth assumptions and is expecting annual productivity growth of a paltry 0.7% in 2028 and beyond. The RBA is also pointing to a downgrade for GDP, business investment and household income if poor productivity performance doesn’t improve. Key reasons behind Tuesday’s cut:Inflation Cooling: Headline inflation dropped to 2.1% in the June quarter, near a four-year low and at the bottom of the RBA’s target range. Core inflation (trimmed mean - excludes volatile price movements, which is especially useful as a measure when headline figures are distorted by temporary shocks like fuel or food
Bonds
Bond update: BetaShares launches first Global Bond ETF
In response to substantial growth in the fixed income ETF market - which has attracted unprecedented net flows over the past year – BetaShares has launched the Global Aggregate Bond Currency Hedged ETF (ASX: WBND). The Australian investment management company expects its new ETF will attract Australian investors who have a growing appetite for diversified fixed income solutions. The launch follows on the heels of the decision by central banks around the world to enter a rate-easing cycle, resulting in more interest in cash and fixed income ETFs with net flows reaching close to nearly $10 billion over the past financial year. The Global Aggregate Bond Currency Hedged ETF is designed to track the Bloomberg Global Aggregate Index (AUD Hedged), which comprises over 30,000 investment-grade bonds from more than 3,100 issuers across 70 countries and 25 currencies. The index is also the official APRA performance benchmark for international fixed interest used by superannuation funds. The fund is currency-hedged into the Australian dollar, employing taxation of final arrangements (TOFA) hedging to enhance after-tax outcomes and create more consistent distribution profiles for investors. According to BetaShares CEO Alex Vy