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Sharp repricing makes bond market harder to ignore
What a difference a month makes: After what’s been a rollercoaster year for bonds, we’re now finishing 2025 with an about-face on the additional rate cuts that the market was expecting only last October, to the possibility two rate hikes in 2026. Reflecting the scale and speed of the market’s pivot, Australian 10-year government bond yield spiked to over 4.8% last week - a whopping 55 basis points higher than the U.S. 10-year yield - a level last seen in November 2023. With bond markets having sharply repriced the outlook for interest rates in recent weeks, there’s no better time to review the risk assets within your portfolio. While government and high-grade bonds are currently deemed attractive, some commentary suggests that credit spreads in the corporate bond market are currently tight, meaning investors may not be adequately compensated for taking on additional default risk in that segment. Australian 10-year government bond yield It was easy to conclude that the current 3.6% cash rate was close to neutral, or at least that was the case until the October consumer price index (CPI) release threw a spanner in the works. With inflation well over the 2-3% target, the Reserve Bank (RBA) may find itself with little ch
Bonds
Pros and cons of investing in local vs overseas bonds
While local investors often struggle with the decision to invest locally or head offshore when it comes to investing in bonds, fixed income experts typically recommend a combination of both, and for diametrically different reasons. The main attraction investors have with the global bond market – which is worth around A$230 trillion – is that it's infinitely larger and more liquid, with a wider variety of instruments and exposures. However, that doesn’t mean local bonds don’t or shouldn’t have a place in your portfolio. While the infinitely smaller Australian fixed income market tends to have the same local exposures, the benefits of onshore bonds comes back to their underlying value. The local bond market is barely worth 2% of the overall global market; however, it accounts for 10% of the world’s AAA-rated bond issuances, which helps to explain why it continues to attract foreign investors. With that in mind, Azzet asked Clive Maguchu, senior strategist with State Street Investment Management, whether investing in global bonds was really worth extra work plus the potential currency and interest rate risk associated with it?Currency and interest rate riskFor starters, when it comes to interest rate risk, Maguchu remi
Bonds
AI bond avalanche pressures debt markets
It only takes a cursory glance at the United States bond market to get a meaningful insight into how tech giants are planning to make their grandiose artificial intelligence (AI) aspirations come true. The trouble is that Wall Street is struggling to keep up with the speed at which bonds from these cash-burning tech companies are coming to market. So much so that the prices of newly issued bonds have slid, which has only fuelled investor anxieties over tech stock valuations, which look stretched relative to historical levels and other market sectors. Based on The Financial Times estimates, corporate bonds from big tech firms are projected to account for over a quarter of the net supply of U.S. corporate bonds this year. With AI-driven bond issuances increasing, JP Morgan expects the U.S. investment-grade bond market to expand to a record US$1.81 trillion in 2026. To put the recent uptick in tech stock bonds in context, since the start of September, so-called AI hyperscalers Amazon, Alphabet, Meta Platforms and Oracle alone have issued around US$90 billion of investment-grade bonds. According to Dealogic, that’s more than the amount they had sold over the previous 40 months.Higher yields While, these companies were a
Bonds
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