Opportunities persist for Australian fixed income investors

From

Anthony Kirkham, Portfolio Manager for the Western Asset Australian Bond Fund, presents his views on the Fund’s recent performance and outlook in a recent podcast.[1]

Mr Kirkham notes in the podcast discussion: “We think the market has now factored in too many interest rate hikes and therefore we increased our duration overweight in late March and have continued to do so in April.

“We believe that once the market settles down, the credit spreads will be able to consolidate and ultimately tighten from here as the fundamentals return to being the main focus.

“We note that investment grade corporate space in Australia is a standout due to the type and quality of issuers in our market, all of which are generally able to pass on any inflationary pressure due to monopolistic duopolistic positions, not to mention the regulated assets that are also prevalent in our market, who can obviously just pass this on through their pricing resets.

“Supranationals, sovereign and agencies (SSAs) are also offering solid value, having seen their spreads widen due to excessive selling by Japanese insurers who saw their annuity products triggered due to the super high Aussie dollar versus a weakening yen. We will reallocate to these bonds once we believe the selling is done.

“We will keep our duration and curve positioning very active to capture the volatility in markets. We managed to capture the moves in the first quarter. Obviously, we’ll look to capture the expected volatility in markets in Q2 as well.”

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[1] Please note that all performance figures discussed are net of fees and as of the 31st of March 2022, unless otherwise noted.
Western Asset is an active fixed income manager and part of the Franklin Templeton group.

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