Tyndall cautious on fixed interest

Several risks, including Australia’s high employment rate, rising oil prices and political unrest, have resulted in Tyndall Investments adopting a short-term position in its fixed interest portfolio.

Head of fixed income, Roger Bridges (pictured), stated that the current investment boom and low unemployment in Australia provided for a strong outlook for the local bond market. However, he warned of several risks, including high growth across many sectors aside from resources and Australia’s high employment rate that may become a headache if not managed properly.

“The high employment level means there is a lack of spare capacity in the job market and, in particular, there is little skilled labour available, which will impact on growth,” said Bridges.

“The Reserve Bank of Australia needs to slow some sectors down if it is to manage inflation risk, so interest rates will inevitably rise, but the timing is still an unknown – which means that some uncertainty is affecting companies.”

He said other risks included the price of oil, which, in light of unrest in the Middle East and North Africa, could derail growth across the world. Policy decisions in the US also posed a concern as its Government grappled with unwinding the quantitative easing package without reigniting inflation.

“In light of these considerations, at Tyndall we are positioning our portfolio with a slightly short term duration, and we are currently overweight in Commonwealth Government securities, which we usually avoid because of the liquidity premium,” said Bridges.

“We are also selling down semi-government securities which we see as having higher risk, and monitoring credit which is providing good value at the moment.”