Australian Bond Exchange

With fixed income assets now offering their highest yields in over a decade, institutional investors are significantly increasing their exposures to the asset class.  

Just last week Australia’s sovereign wealth fund, the Future Fund, announced it had doubled its domestic corporate debt exposure to $1 billion while AustralianSuper, Australia’s largest super fund also confirmed it has now allocated 18 per cent of its assets into fixed income. 

With central banks having raised interest rates aggressively across the globe to curtail rampant inflation, the attractiveness of corporate bonds is garnering increased attention. 

At a superannuation lending roundtable, former Australian prime minister, Paul Keating stated: “If you’ve got the third-biggest super savings in the world and you don’t have a corporate bond market, you’re a duffer. Simply a duffer”. 

A Shifting Financial Landscape  

It is clear that fixed income assets, and specifically corporate securities, are growing in importance as a means of delivering attractive risk-adjusted returns. 

These headlines come off the back of the latest Intergenerational Report which highlights the seismic demographic shifts within Australia and the changing financial and investment requirements of baby boomers who are transitioning into retirement.  

 “For demographic, inflation and higher interest rate reasons, the balance in a future portfolio may include a higher proportion of floating and fixed interest [investments].” – Paul Keating 

Equity markets have provided effective returns for baby boomers during their accumulation phase, but the shift to capital preservation and fixed income is becoming increasingly important. 


The Case for Corporate Bonds  

While it’s true that each client has different needs, objectives and personal circumstances, a common requirement among retirees is the need for a stable and fixed income which allows them to live a comfortable life in retirement.

While equities have typically provided a 10% investment return per annum over the last decade, with geo-political uncertainty, climate change and globalization hindering economic growth, there are various structural headwinds which need to be considered. 

Corporate bonds aren’t without risk, but they are generally considered to be ‘defensive assets’ which exhibit lower volatility and less risk than equities. Some corporate bonds are now paying coupons of approximately 6-8% per annum, offering investors the potential to generate a stable income in retirement while also acting as a portfolio diviersifier.  

For more information about corporate bonds, contact the Australian Bond Exchange 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.