Niall O’Sullivan, global chief investment officer for investment giant Marsh, is charting a bold contrarian course amidst turbulent global bond markets. Marsh, formerly known as Mercer, is a major investment firm that advises on over $US16 trillion globally. O’Sullivan is shifting his focus towards fixed income assets, particularly in the UK, Australia, and the US, betting on underlying economic weakness. He anticipates central banks will follow rate rises with swift cuts, limiting upward movement for Aussie bond yields. US real yields nearing 2.5 per cent are also seen as appealing, poised to attract significant capital.
This contrarian view emerges as global bond markets endure a relentless sell-off. The 10-year US Treasury yield recently hit a 19-year high of 5.03 per cent. Locally, Bell Potter’s Richard Coppleson highlights the Australian 10-year government bond yield’s colossal surge of 0.63 percentage points in just two and a half months, reaching a fresh 15-year high of 5.41 per cent. This rapid movement reflects stubborn inflation, US rate rise prospects, and a violent shift in RBA rate expectations from cuts to increases, creating significant pressure across Australian equity markets.
The pressure from bond markets has heavily impacted Australian equity markets. The S&P/ASX 200 has closed lower on nine of September’s first 11 trading days, falling 4.4 per cent and erasing its year-to-date gains. Sectors such as banks and consumer stocks have experienced substantial pain; Commonwealth Bank is down over 15 per cent since early August, and JB Hi-Fi has fallen 19 per cent. Mining giants BHP and Rio Tinto have also seen significant losses, making a swift resolution to the bond market’s ‘fever’ appear unlikely in the near term.
