Why are Aussie bond yields at lowest ever? by Ashley Owen

Why are Aussie bond yields at lowest ever? - Cuffelinks

 

Thanks for linking. Owen’s posts are usually interesting, always seem to learn something

 

Yields dropping , prices increasing

 

Biggest fluke of my short investing career so far. Put most of my money into IG bonds last year whilst working out what shares to invest in. Made 5.5% yield and 9% CG in 8 months. Still think no more than 15% of my portfolio is the best fit for me in bonds not 85% as it is now. Working on it.

 

Still don’t like em. Evil things if you ask me.

 

From the paper

The bond market may never return to 'normal'

The Reserve Bank, perhaps in a subtle attempt to pad the runway, tried to explain last month why global bond rates were so low.

RBA explains

Bond rates were a function of three components – expected short-term interest rates, inflation expectations and the "term premium", which refers to the compensation required for the risk that the other two variables may move against them.

All three factors explain lower interest rates. The so-called "neutral rate" where monetary policy is neither easy nor tight has fallen because there has been a decline in savings, and a fall in investing.

Inflation has been gradually declining, helped by inflation targeting central banks. And the experience in recent years has been that despite unprecedented stimulus, central banks have failed to hit those targets, reinforcing lower inflation expectations.

With rates low and staying lower, investors are also more confident that bond yields won't move against them, reducing the "term premium".

A reversal in global interest rates is perplexing for investors. Falling bond rates tend to be a sign that the economy is slowing, and therefore are a negative sign for risky assets such as stocks.

 

Which Bonds @Brumbie ?

Trading Bonds IG AU

 

I went through FIIG in wholesale lots. IAG,Westpac,Pacific National,IMB,Ale,Centuria,Sydney Airport,Liberty,Adani port and Newcastle Coal (USD - Big mover due to currency). Mixed of fixed and floating and inflation linked. Portfolio duration only 2.9y average as I wanted them laddered so I can invest in the stock market by DCA'ing over this time and av grade is Aa.
My main driver was not to lose any capital and as I was planning to hold to maturity I new what I was in for. Now having made a CG I don't know what to do? Don't want to start trading bonds particularly.
Longer term I don't know whether I will stick with FIIG(they are great) or go a Bond ETF instead. Still working on that. But I like Bonds/debt as part of your portfolio. Also looking at some private mortgage backed investments in the debt part. Debt ranks higher than equity. Get with it @Nodrog!

 

No respect for the elderly here.

If I was going to own Bonds they would be their most important purpose being that of Safety / Correlation benefit! Hence I wouldn’t even think of holding that sort of rubbish which FIIG generally try to flog off. In a very serious financial downturn which the GFC wasn’t in Australia’s case (thanks to mining) corporate bonds and the like will behave more like equities but minus the long term benefits of equities.

So there.

 

Haha. I could raise you with a chart, but you are correct, if you are trading them (which I am not). The bet is the same as investing in the equities of the same companies as to their solvency. You are just on the different side of the ledger. I will still get my $100 back over the next 2.9y. And if they go broke I am likely to get $40 back but my shares will be worth zero.
You are pretty much preaching to the converted here regarding where to invest for the best return in the long run. I am equities for 85% of my portfolio. But debt has a small place with a mixture of gov,corporate and private in there ( and the income is pretty good - being an income investor, such as your good self).

Here is some learnin' for the day.

Top ten reasons investing is like sex:

1. Some like it long, some like it short.
2. You can study the market as much as you like, but it all comes down to luck.
3. Those who talk about it the most, have the least experience.
4. One simple mistake could lead to 18 unprofitable years.
5. Some prefer to sit back and watch it grow.
6. Terms include swing trading, asset turnover, naked call, after hours, insider trading, silent partner, blind entries, 30-day wash rule, straddle,
7. triangles, descending tops, ascending bottoms, pump and dump, partial surrender, stop order, position limit, voluntary liquidation, and explicit
8. interest.
9. Low confidence can keep you out of the market.
10. Everyone tends to focus on performance.
11. Some do it alone, others do it with a group, and some hire professionals, and the best reason ...
12. Some positions are better than others and the best position is always up for debate!

And remember, past performance is not necessarily indicative of future results.

 

Those were the days.

 

Is that a little blue pill with sunglasses?

 

I'm after maximum performance.