Fixed Interest

After what seems like a break, the popular hybrid note market is back in action.

You don’t have to borrow big or worry about falling prices to invest in property. Property companies issue corporate bonds and they can be a great alternative – here are ten reasons why you might invest in a property bond instead of direct investment with a mortgage

It’s interesting then to consider how some of the bigger institutions are coping with low rates and how they are changing their asset allocations to try and improve returns, while limiting risk. Watching these larger corporations with dedicated research teams and global asset managers, helps identify trends that smaller investors can replicate.

A few years ago Glencore, a diversified multinational commodity trading and mining company, issued a bond in the domestic market for the first time. At that time, the company had a market capitalisation of around $50 billion, and was the nation’s largest coal producer through its Australian subsidiary Glencore Xstrata.

They appear to be mimicking US commentators whose comments relate to US government fixed rate bonds. In that context, I agree there is scope to describe the market as in a “bubble”. These bonds known as US treasuries have very low yields with three year bonds returning 0.96 percent and ten year, 1.62 percent. If the US Fed increases interest rates, these bonds will lose value.

The three types of bonds available – fixed rate, floating rate and inflation linked – offer compelling protections that term deposits do not

I think it’s important to imagine what might happen to various markets and prepare now if you think a 1 percent cash rate is a possibility.

For some years the FIIG research team has pondered the loss of the Australian governments’ treasured AAA credit rating.

But can we count on them to continue delivering, or is it time to look at other forms of exposure to the sector?

No one knows what will happen to financial markets in the coming months but it seems likely that growing uncertainty – due to China, higher interest rates in the US, lower oil or something unexpected – will cause increased volatility

Britain’s crucial Brexit vote takes place on Thursday. Markets are getting progressively more nervous as polls converge, with investors realising it will take years to disengage from the EU and the drag this will have on trade and global growth if they decide to go

Just as cane toads have evolved to survive in a range of climates, hybrids have evolved to adapt to changing regulatory and interest rate environments The similarities do not end there because just like cane toads, hybrids have good, bad and ugly characteristics.

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This is the first financial institution hybrid of 2016 and we expect more over the next 12 months. Recent poor hybrid performance has demonstrated that prior issues were cheap funding for the banks and the institutions that shied away from the market were right to do so.

Even if you don’t own shares in your own name, you can be certain that your superannuation fund has invested in them on your behalf with allocations of around 50 per cent common and some as high as 70 per cent.

On occasion it comes about that SMSF trustees take on the burden of investing on behalf of their members, which can be a worry.

Are you sick of chasing the best returns on term deposits? Floating rate bonds whose interest income adjusts quarterly to reflect current expectations of interest rates, may be a solution. Here are three suggested floating rate bonds.

AA+ rated from Standard and Poor’s and with more than US$200bn of cash on its balance sheet Apple bonds are considered to be safe haven investments

Recent well-reported sharp declines in shares and step-like rebounds are likely to be more frequent in future. If you were worried about the value of your portfolio, then it’s a sign that you need to rethink your asset allocation and think about increasing the proportion of defensive assets you hold including deposits and bonds.

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The debate rages around the proposed Carmichael coal mine development in central Queensland. Investors have reportedly spent over $1 billion on early development of the project but the expansion has been met with fierce opposition from conservationists. It is a polarising and emotive discussion which can be confusing for investors.

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Anyone with health insurance or paying private school fees will appreciate that prices increase every year and often by far more than inflation. The prices of certain other goods and services may decline in any given quarter, but overall there has only been one negative quarterly inflation rate in the last 25 years, making inflation a critical consideration when investing.

Last week, Westpac brought a new listed hybrid to the market. I’m expecting it to be joined by an avalanche of new issues to meet higher APRA capital requirements, so I think it is timely to suggest some tips on assessing them.

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This week, the Australian Prudential Regulation Authority announced higher capital requirements for residential mortgages for the four major banks (ANZ, CBA, NAB, Westpac) and Macquarie, in order to offset mortgage risk.

Download related file: Direct Bonds Lists 20150723 0850.pdf

Greece is a small country that makes up only tiny proportion of the European Union economy but the prospect of it defaulting on its debts last week saw its 10 year bond yields move dramatically higher.

I heard a fascinating account of a client’s bond strategy last week that I think is worth sharing because it perfectly illustrates why investors should not over-rely on any one asset class.

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Heightened volatility has investors seeking safer investments. Derisking strategies include increasing your cash holdings, preferring investment grade bonds over high yield and investing in “safe havens” such as the US dollar

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One of the big attractions is that control, allowing you to diversify away from companies where you already own the shares. Not all bonds will suit all investors.

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I was lucky enough to attend the recent Economic Society lunch in Brisbane and hear the speech by Reserve Bank Governor, Glenn Stevens. He gave little away regarding the direction of interest rates, although there were quite a few inventive questions designed to trip him up.