Helen Mason

Australian credit markets are undergoing a clear shift, with investors becoming increasingly selective as macroeconomic uncertainty builds, driving a strong rotation toward high-quality issuers, Helen Mason, Schroders’ head of credit says.

With ongoing conflict in the Middle East delivering unprecedented global oil supply disruption, financial markets have struggled to gain a clear read on inflation or growth.

For Australian businesses, the impact is already filtering through. Mason says higher fuel costs are acting as an immediate drag on consumers, with flow-on effects expected across retail, travel and discretionary sectors.

“Higher petrol prices hit households quickly and broadly, which weighs on spending,” Mason says.

“That has clear implications for sectors like retail and travel, where we would expect to see softer demand.”

Companies such as Ampol, Qantas and Air New Zealand are likely to feel the impact of weaker travel demand, while retail A-REITs may also face pressure as consumer activity slows.

Despite the more cautious tone, primary markets have remained active, with issuers including NBN, Dalrymple Bay Coal Export Terminal, Charter Hall Finance, MyState Bank and Meridian Energy successfully accessing capital with healthy demand.

“This level of activity highlights that demand for credit is still there,” Mason says.

“But it’s highly selective. Capital is flowing to issuers that can offer certainty and resilience in an uncertain environment.”

At the same time, higher-beta issuance has begun to stall. Mandates from names such as Qantas, NextDC and Investa Commercial Property Fund were delayed or pulled as investor appetite softened through the month.

“That divergence is telling,” Mason says.

“The market is clearly drawing a line between defensive, high-grade credit and anything perceived as more cyclical or exposed to economic slowdown.”

Even global issuers have tested the market, with US telecommunications giant Verizon launching a $1.3 billion subordinated deal in Australian dollars. Mason noted pricing was tight relative to conditions, with the bonds underperforming shortly after issuance.

“It’s a good example of how quickly sentiment can shift. Even high-quality global names are not immune if valuations don’t stack up in a more volatile backdrop.”

The repricing in credit reflects a broader adjustment across markets, with rising input costs, persistent inflation and tighter financial conditions increasing pressure on corporate earnings and refinancing.

Mason added that growing dispersion in credit spreads is beginning to create more attractive entry points for active investors.

“For a long period, spreads were compressed across the board,” Mason says.

“Now we’re starting to see genuine differentiation, which creates opportunities to add value through careful security selection.”

Looking ahead, uncertainty is expected to remain a defining feature of markets, with the path for credit dependent on how macro conditions evolve.

“The range of outcomes remains wide, and that calls for discipline,” Mason says.

“Investors need to stay selective, focus on quality and be prepared for continued volatility.”

The post Credit markets shift as investors rotate to quality amid volatility appeared first on AdviserVoice.

Helen Mason

The Australian credit market has started 2026 with strong momentum, with more than $14 billion in new issuance in January alone, highlighting continued investor demand and a supportive environment for income-focused investors, according to Helen Mason, fixed income fund manager at Schroders.

Mason said the strong start to the year challenges the long-held view that local credit markets take time to gain momentum after the holiday period. However, broader economic backdrop continues to favour credit investors, with corporate earnings holding up and the impact of higher rates flowing through gradually.

“January issuance has been remarkably strong, exceeding $14 billion, demonstrating that both supply and demand remain firmly intact as we enter 2026,” said Mason.

“Even expectations of further rate increases later this year have done little to unsettle spreads, reflecting the ongoing appetite for yield.”

New issuance in January was dominated by domestic and offshore banks, alongside selected corporate deals. Notable transactions included the inaugural AUD bond from Hong Kong’s MTR Corporation which raised $2 billion, and $1.1 bullion corporate hybrid from AusNet Services that attracted strong investor demand.

Demand was evident offshore, with several Australian banks issuing approximately US$6 billion in senior debt, as well as a €1 billion subordinated note.

Mason said investor demand remained strong across the month with most deals oversubscribed, and new issue concessions limited. Bond maturities totalled around $7 billion, roughly half the volume of new issuance, resulting in a net inflow of capital into the market.

“This supports our expectation that Australian-dollar credit can continue to grow in 2026, driven by rising superannuation assets, attractive yields and sustained demand from global investors, particularly Asia,” she added.

Mason highlighted Australian seaports as an area of ongoing interest within credit markets, citing their critical role in the economy and stable long-term cashflows.

“Ports handle around 99 per cent of Australia’s import and export trade, supporting approximately $650 billion in annual commerce. Their geographic positioning and pseudo-monopolistic market structures help maintain the stability and reliability of cashflows.”

While issuance from the sector was limited last year, Mason expects funding requirements to rise as infrastructure upgrades accelerate, including automation, channel deepening, land development and expansion of intermodal facilities.

Strong spread performance in January was led by Tier 2 subordinated bank paper, utilities and infrastructure according to Mason, but dispersion between sectors and issuers remains significant.

“In this environment, sector rotation and active management are essential,” she said. “Despite strong overall demand, relative value opportunities continue to emerge across sectors, curves and issuers.”

She said portfolio positioning currently favours senior and non-financial paper, while exposure to subordinated bank debt remains below long-term averages largely due to supply dynamics.

Mason also noted increasing exposure to high-quality issuers in the metals, mining and chemicals sector.

“We have selectively increased our allocation to investment-grade borrowers in this space, more than doubling exposure since October, while maintaining no exposure to sub-investment-grade miners,” she said.

“With strong fundamentals, persistent demand and supportive structural drivers, Australian credit appears well positioned for another constructive year.”

The post Australian credit surges into 2026 as strong demand and supply signal another year of growth appeared first on AdviserVoice.

Helen Mason

Spreads are tightening for Australian corporate bonds despite high issuance volumes, Schroders portfolio manager fixed income, Helen Mason says.

“This dynamic provides evidence of the growing depth and maturity of Australia’s corporate bond market which is continuing to draw investors from overseas as well as Australia given the health of the market and the Australian economy,” Mason said.

“While the credit cycle is constructive for investors in Australia, risks persist in the US, where both equity and credit valuations are a concern. The current US central bank policy stance is unlikely to alleviate these valuation excesses for credit in the near term.”

“In addition, the uncertainty surrounding economic data and growth from the world’s largest economy raises the prospect of increased global market volatility, should macroeconomic conditions disappoint. This situation warrants ongoing vigilance from investors.”

Australian seaports stood out as a sector of strength, reporting record 2025 financial year results despite flat trade throughput and ongoing uncertainty around global tariffs.

“Ports continue to demonstrate the resilience and income stability that investors seek in infrastructure assets,” Mason said.

Landlord-style operating models, where port authorities derive revenue primarily from land leases and service charges, supported EBITDA margins exceeding 80 per cent. This was achieved even as bulk commodity volumes declined.

Recent port issuances, including Port of Melbourne’s $400 million 7-year note and Port of Newcastle’s $300 million 8-year bond, were both heavily oversubscribed, highlighting the continued investor demand for high-quality infrastructure assets.

With AUD spreads tightening, offshore deals such as the 5-year USD National Broadband Network (NBN) and 7-year EUR Singapore Power Assets (SGSPAA) transactions offered compelling relative value and continued to attract active participation from Australian investors.

“Strong fundamentals across Australian credit and infrastructure continue to underpin demand. We’re seeing the market reward quality and diversification, both locally and offshore,” Mason said.

With the phasing out of retail bank hybrids, known as Additional Tier 1 (AT1), Mason is encouraging investors to consider corporate bonds for their portfolios. While retail bank hybrids were popular with retail investors, their phasing out means investors will need to find replacement securities.

“AT1 retail bank hybrids have been very popular with retail investors for their attractive returns, franking credits, and perceived safety and so, retail investors hold an estimated 30 per cent of the retail bank hybrid market in Australia,” Mason said.

“Now is the time for retail investors to think about reallocating their retail bank hybrid exposure to Australian high yielding credit and the outlook for robust returns in certain sectors is good.”

“We think that with the Reserve Bank of Australia on hold most likely until next year, elevated all-in yields will continue to attract offshore demand and support both the technical dynamics and issuer supply pipelines in the Australian credit market,”

“Barring any macroeconomic shocks, we see spreads continuing to grind tighter into year-end. The RBA’s pause provides a supportive backdrop, and elevated all-in yields should continue to attract offshore buyers,” Mason said.

The post It pays to stay active: rotation is key as Australian credit spreads tighten appeared first on AdviserVoice.

Helen Mason

Despite a final phase out date of 2032, a number of large bank hybrids have already matured, which means investors need to start looking for alternative investments sooner rather than later, according to Schroders portfolio manager, fixed income, Helen Mason.

Ms Mason says a CBA and ANZ hybrid have already been called and matured with a Westpac hybrid to mature this month.
“About 76 per cent of current hybrid securities will be called within the next 5 years. That’s a lot of money that needs a new home. The other thing to consider is pricing pressure. Every single retail hybrid security is currently trading above par.  It is important to remember if investors wait until the call date, they will not receive the current trading price, which could be $106, as the price will pull towards the par value of $100 as these securities get closer to call,” Ms Mason says.

“Investors should therefore start considering other options to replace their hybrid exposure whist the price remains high and to avoid the potential for capital losses into the future.”

Bank hybrids, also known as Additional Tier 1, have been attractive to retail investors for a variety of reasons including their perceived safety, the yield and their franking credits. Retail investors comprise a large percentage of the $40 billion bank hybrid market in Australia, Ms Mason says.

“Because hybrids are issued by the Australian major banks, retail investors have been less concerned over the risk of bank failure. But although unlikely, a loss of confidence in the banking system can occur for a number of reasons. In terms of the risk, hybrids were put in place to provide an additional source loss provision to help shore-up the capital stack and avoid the Government having to step-in to support depositors in the event of a crisis. Given hybrids sit just below equity in the capital stack, means hybrid holders were taking far more risk than they were possibly aware of.

“Hybrids are volatile. They actually trade like equities. For instance, in 2023 when Credit Suisse and Silicon Valley Bank failed, the contagion effects to Australia were not insignificant. The PERLS XIII, a CBA bank hybrid, had a drawdown of 2.5 per cent which was over 6 times greater than the draw down on the Schroder Australia High Yielding Credit Fund at the time,” Ms Mason says.

She adds that bank hybrids are complicated products. “They were originally established to manage liquidity and the contagion shortcomings revealed by the global financial crisis (GFC).

“In fact, the decision to phase out bank hybrids itself is indicative of how APRA and ASIC do not believe they are fit for purpose or a suitable investment for retail investors.

“Clearly it is time to think about transitioning from those hybrids and looking at other opportunities in the market, and there are some very compelling alternatives,” Ms Mason says.

For instance, she says that Australian public debt is very attractive.

“The Australian credit index versus the credit indices of the likes of the US and the Europe is about two ratings notches higher.

“Our index is very high quality. The reason for that is partly our highly regulated and high-quality banking system, as well as other high-quality businesses which have highly regulated cash flows but are also inflation linked. We have very low exposure to cyclical companies in our credit market”

“Furthermore, around 60 per cent of issuance in the Australian public credit universe is unlisted, meaning investors cannot access these companies via equity markets. So, it provides an element of diversification,” she says.

Examples of the kinds of businesses issuing debt are Sydney Airport, the Port of Brisbane, the Port of Newcastle, and Transgrid. Ms Mason says these businesses have high quality monopoly-like characteristics but need to take on debt to fund projects they are working on.

“The energy transition has meant increased capex for many companies to support the roll-off of traditional energy sources into renewables, which means they have to issue more debt,” Ms Mason says.

Some large infrastructure companies are using corporate hybrids to support their capex pipeline, which are available to wholesale investors only. Melbourne airport recently listed such an instrument.

“They’re building a third runway, and so they require capital up front. Issuing a corporate hybrid helps to protect the senior debt credit rating without compromising business requirements.,” Mason says.

The corporate hybrid market is a growing market in Australia and, according to Ms Mason, an increasingly attractive one for wholesale and institutional investors.

For retail investors to be able to access these types of investments, they may need to look to look at investing via funds or ETFs – such as the Schroder Australian High Yielding Credit Fund and Active ETF, Cboe: HIGH.

The post As time runs out for bank hybrids, it’s time to look for alternatives appeared first on AdviserVoice.

Helen Mason

Now could be a good time for retail investors to reevaluate exposure to hybrids given their attractive valuations despite approaching their call dates, according to Helen Mason, fund manager at Schroders Australia.  

“Now could be a good time to consider selling bank hybrids as they are currently trading above par value, and they are expected to return to par value as they get closer to their call dates. That is something for investors to think about, whether now is the time to sell out and where to go to next,” Ms Mason said. 

“We believe high-quality investment grade Australian credit, issued by Australian financials and corporates are a good option. They can provide reliable returns and offer strong potential to deliver attractive income to investors, sitting somewhere between the growth and defensive buckets in portfolios. 

“Importantly, the Australian public credit market has been a significant source of alpha for institutional investors and now is a good time for retail investors to start thinking about it too, and how credit can be a substitute option for retail bank hybrids ahead of their phasing out in 2032.” 

Under changes introduced by the Australian Prudential Regulation Authority (APRA) in December, Australian banks will no longer be able to raise funding from hybrid securities, which are popular among retail investors. The market for bank hybrids, which are a combination of debt and equity, will be phased out between now and 2032. APRA’s decision is significant, particularly for retail investors who hold a large portion of the $40-billion-plus hybrid market.   

“Importantly, corporate credit has often outperformed retail hybrids over time. Australian financial and corporate credit is possibly the most attractive investment opportunity in markets today and gives you great diversification opportunities,” Ms Mason said. 

“Within this market, investors can gain access to not only international wholesale bank hybrids, but corporate hybrids and senior corporate and financial securities. It has been a long-held view of ours that investors were limiting themselves by just utilising bank hybrids, when access to a diversified pool of high-quality Australian companies has been shown to outperform the retail Tier 1 asset class.” 

According to Mason, Australian investment grade credit index is one of the highest quality in the world, and this is due to the exceptional fundamentals of the corporates that underpin the index with financials, government agencies, infrastructure and utilities sectors comprising large weights. These companies provide investors with stable look-through cash flows, often inflation-protected and generally trade with low levels of volatility. 

“Previously the minimum parcel size in public credit markets has limited retail investor access, but it now presents an opportunity for retail investors through managed funds,” Ms Mason said. 

The Schroder Australian High Yielding Credit Fund invests in corporate and financial credit across sectors, issuers, maturity, ratings grade and capital structure dimensions, including subordinated debt. It aims to deliver returns 2.5 to 3.0 per cent p.a. above the cash rate, but with less risk and volatility than equities. 

The post Now could be a good time to reevaluate hybrid allocations appeared first on AdviserVoice.

Helen Mason

Schroders has launched an actively managed Australian credit strategy designed to meet the needs of investors seeking to diversify their equity or term deposit allocations whilst preserving capital, through exposure to the compelling, but historically difficult to access, Australian wholesale high yielding credit universe.

The Schroder Australian High Yielding Credit Fund seeks to deliver returns of 2.5 to 3.0 per cent above the cash rate, before fees, over the medium term, and offers daily liquidity unlike Term Deposits.  The Fund has been running since 2001 as an allocation within Schroders Fixed Income and Multi-Asset strategies, and is now available to retail investors as a standalone fund for the first time.

Head of Fixed Income, Kellie Wood, said the strategy provides easy access to complicated wholesale credit markets and is managed by an experienced team with a robust and proven investment process.

“The fund is managed by Helen Mason, who has more than a decade’s experience as a fund manager and a senior credit research analyst at Schroders, and has been with the company since 2005.  She is supported by a skilled local team with proven experience across fixed income and multi-asset investment, as well as by Schroders’ global network of credit analysts.”

Ms Mason said the strategy addresses the need for a higher-yielding income option beyond diversified, traditional equity and cash-based products, while seeking to avoid the liquidity challenges associated with private equity, structured and private debt markets.

The Fund can invest across the senior, subordinated, rated and unrated credit universe in Australia. This includes debt issued by Australian domiciled companies in any currency and offshore companies accessing the AUD capital markets (Kangaroo Issuers).

“Following years of rates at near zero, yields have been restored and fixed income assets are back in play. Inflation remains sticky while growth and employment are holding up, forcing central banks to maintain rates at elevated levels.”

“The Fund incorporates top-down and bottom-up views to identify the most compelling assets to own at any given point in the cycle and aims to provide attractive income opportunities, offering daily liquidity while effectively managing default risk.”

“It has the flexibility to invest across the Australian credit universe, unconstrained by benchmarks, to capture returns with appropriately managed risk.”

“The targeted result of this strategy is a diversified portfolio of investment-grade rated credit securities with the potential to deliver consistent returns above cash and term deposits but with lower volatility than equities,” Ms Mason said.

“This has been reflected in the strong 11.01% p.a. (gross of fees1) return, 6.70% above the cash rate, the Fund has delivered over a 1Y period, whilst also maintaining consistent outperformance over the long term, achieving relative return of 2.80% p.a. (gross of fees1) and 2.79% p.a. (gross of fees1) over the past 5 and 10 years respectively.”

The Fund has been awarded a Recommended rating from Zenith Investment Partners.

The post Schroders launches new Australian High Yielding Credit Fund appeared first on AdviserVoice.