One year ago, U.S. 10-year Treasury bonds were yielding 0.74%pa while today, they offer 4.61%pa – and coupon payments on corporate fixed-income securities are even higher.
With widespread global economic and geo-political uncertainty, it’s unsurprising to see many investors rebalance portfolios in favour of asset classes which can provide a greater degree of stability and reliability.
Corporate fixed-income securities, while not devoid of risk, are becoming an increasingly attractive proposition for institutional and wholesale investors alike.
Just a few months ago, the Future Fund announced it was doubling its exposure to corporate debt, and there are many other examples of institutional investors stating they are bullish on the sector.
This is unsurprising given corporate fixed-income is returning anywhere from 6-10%pa.
Limited Window of Opportunity
While central banks currently appear to be singing in unison from the ‘higher for longer’ hymn book, the economic effects from the rapid succession of interest rate hikes is still yet to be known.
While the hard landing narrative has faded somewhat, the prospect of interest rates needing to be cut quickly is still a real possibility. In such an event, fixed-income securities will likely increase in value, positioning investors in an enviable position where attractive income is generated alongside capital appreciation.
Of course, there is no guarantee that rates don’t continue to drift higher, but it does seem increasingly plausible that the majority of hikes are now behind us.
Getting Paid to Wait
Whether we have seen the last rake hike or not, high quality corporate fixed-income securities look attractive at current levels and are paying desirable returns for skittish investors looking to wait out the storm.
It’s important to note that while issuers of corporate fixed-income securities are legally and financially obliged to pay investors, there is no guarantee they can or will.
In the event of a default, coupon payments will stop and some or all of the principal investment may be lost, so it’s important to understand the various risks involved.
How the Australian Bond Exchange Can Help
For more information about how corporate fixed-income could benefit you, speak to an Australian Bond Exchange adviser today.
Disclaimer: Australian Bond Exchange Pty Ltd ACN 605 038 935 AFSL 484453 (ABE). This article is intended to provide general information of an educational nature only. It does not constitute the provision of personal advice and does not take into account your personal objectives, financial situation or needs. Before investing with ABE, you should consider the appropriateness of the investment to your particular financial and taxation situation and consider obtaining independent advice before making an investment. Examples in this article are for illustration purposes only and are not a recommendation to buy, sell or hold a particular investment. ABE makes no representation or guarantee as to the availability of a bond with the characteristics described in this article or that an investment made by you will generate the returns in the illustration. Past performance is not an indication of future performance. Investing with ABE is subject to our Client Services and Custody Agreement Terms and Conditions and Financial Services Guide.