Domestic bond benchmark investors could be missing out on significant return potential due to “benchmark-imposed limitations and risks”, AllianceBernstein believes.
Despite the solid performance of Australian bonds in the last few years, fixed-income investors could be limited by the domestic market in the future, particularly if the perceived secure market loses favour with overseas investors, Alison Martier, AllianceBernstein’s senior portfolio manager, said.
“Just recently we’ve seen Australian bond yields following US Treasury yields higher on expectations that the US Federal Reserve will begin tapering its economic stimulus program from September,” Ms Martier said.
“This is just a couple of weeks after the Reserve Bank of Australia cut the cash rate to a record low of 2.5 per cent in response to the sluggish economy – a move that, during normal circumstances, would be favourable for domestic bonds.
“This shows how global, rather than domestic, factors are weighing on local bonds.”
She said investors would be better off if they were “unconstrained by what have effectively become benchmark-imposed limitations and risks”.
“We believe that, in this environment, fixed-income investors would be better served by a bond strategy that pragmatically canvasses opportunities across global markets,” Ms Martier said.
The senior portfolio manager will visit Australia next month to further discussion bond opportunities and risks.
