(Bloomberg) – Australian bonds have good value after their recent crisis as the central bank is expected to keep interest rates low despite signs of accelerating inflation, fund managers say.
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Franklin Templeton Investment Australia Ltd. has already started buying, saying concerns about rising consumer prices that have driven bond yields up globally appear premature. Yarra Capital Management Ltd. sees value emerge as new regulations to dampen the housing market will allow policymakers to tighten up.
The rise in yields provided an opportunity to add positions in bonds, said Chris Siniakov, head of Australian fixed income at Franklin Templeton in Melbourne. “It worked well earlier this year when yields fell through July-August, and we expect yields to start stabilizing from here before” falling again in the coming months. , did he declare.
Siniakov said inflation will only get higher when much of the world experiences several quarters of above-trend growth. Reserve Bank of Australia “Governor Philip Lowe understands this, and it looks like he will be watching the market until these conditions are met,” he said.
The country’s 10-year benchmark yield fell 7 basis points to 1.62% on Thursday, with data showing the unemployment rate edged up in September. The yield climbed to 1.77% this week, more than 70 basis points above the August low as bets on rate hikes accelerated.
The RBA has said the cash rate will remain at an all-time low of 0.1% until at least 2024, as pressures on wages and inflation are expected to remain subdued.
The decline in Australian bonds over the past two months was largely due to external factors. Global debt markets have been battered by expectations that soaring energy costs will push up inflation, even as the Federal Reserve has reiterated its commitment to cut bond purchases.
Australian bonds were also sold after state governments announced the end of long-standing lockdowns in the country’s two largest cities, while the federal government pledged to reopen the country to international travelers.
Not everyone agrees that this is the right time to buy.
Central banks may be saying they’re happy to let economies heat up, but that position could change quickly once they come under fire, said Bill Bovingdon, chief investment officer at Altius Asset Management Pty. in Sydney. There is also a risk that high inflation will be more persistent due to rising energy prices and supply chain issues, so it makes sense to maintain a conservative stance, he said.
“While I think the market prices are fairer now, they don’t seem to be enough to cover all of this inflation risk,” Bovingdon said. “If the markets consolidate here, we’ll probably be more confident to come back and add bonds to our portfolio. But we are not doing it yet.
Yarra Capital is more optimistic, saying the decision by Australia’s banking regulator last week to adjust credit buffers to cool the housing market means the central bank is unlikely to raise interest rates until 2024, thus reinforcing the obligations.
Still, as yields approach where they look attractive, timing of the move is difficult given the heightened volatility, said Chris Rands, Sydney portfolio manager at Yarra Capital, who bought the Australian business of Nikko. Asset Management this year.
“It’s not smart to get in early,” he said. “I was tempted to try to sink my toe” this week, but “it will only be small if we do.”
(Updates with bond yields and unemployment data in the fifth paragraph)
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