ANGLO-SWISS miner Glencore has been in the news recently courting Rio Tinto but it made bond market headlines last month for different reasons.

Mergers and acquisitions have surged in Australia this year so this is a good time to consider the impact of these events on bondholders.

This month, Glencore, a diversified multinational commodity trading and mining company, issued a bond in the domestic market for the first time. The company has a market capitalisation of around $50 billion and is the nation’s largest coal producer through its Australian subsidiary Glencore Xstrata.

In recent weeks we have written to our clients and to the media about our concerns about the proliferation of “equity hybrids”. Equity hybrids, as opposed to debt hybrids, are hybrid securities that we believe have a risk exposure akin to equities, not bonds due to the ability of banking regulators to force their conversion to equities without any ability of hybrid investors to control this outcome. More concerning is the fact that Australian investors have invested a total of $20 billion in these securities, including the recent $2.5bn CBA hybrid PERLS VII.

The yield curve, also called the term structure of interest rates, shows the relationship between interest rates and term to maturity.

Two recent events brought home how powerless investors in managed funds are when danger looms in the financial markets.

In a low yielding investment environment smart investors can still boost their returns by taking on carefully selected risk as part of a diversified portfolio.

A custodian who invests funds on behalf of others, or for their benefit, is in an extraordinarily trusted position. They are expected to invest wisely and are accountable to a wide group for their actions.

When an investor puts their SMSF into pension phase, they face a new problem they may not have considered which is how to draw down enough money each year to meet the minimum pension payment.

Key points:

Post GFC, there is a renewed awareness of the volatility of markets and the need to diversify investments to hedge against it.

There’s a misconception in the market that buying bonds means locking away your funds for a long time.

In his speech to open the Griffith University Personal Finance and Superannuation school last month, one of Australia’s leading experts on the superannuation system Professor Michael E. Drew continued his decade-long campaign to shift our thinking about how we invest from focusing on promises to looking at reliable outcomes.

Fixed Versus Floating? It’s All A Matter Of Interest Rate Timing