Australian credit market well supported

22 August 2018
| By Oksana Patron |
image
image
expand image

Australian credit markets have been well supported by the ‘robust’ economy and there is no ‘imminent threat’ to the current credit cycle, according to Legg Mason’s fixed interest manager, Western Asset.

The manager said the corporate earnings season turned out to be solid, with the slightly more optimistic outlook driven by stronger earnings, while credit quality remained sound with gearing ratios generally towards the lower end of target ranges and debt coverage ratios remaining still healthy.

However, the consumer remained a key risk to the outlook for the corporate treasuries.

Western Asset’s portfolio manager and research analyst, Damon Shinnick, said key risks were in the housing market, particularly given heightened levels of interest-only loans and investor lending.

“Bottom-up analysis remains key, so avoiding companies that have exposure to more cyclical parts of the economy will likely serve portfolios well. This focus on the fundamentals will also continue to drive Western Asset’s tactical positioning across portfolios,” he said.

He noted that historically there had been a strong correlation between US speculative grade default rates and Australian dollar corporate spreads.

“This relationship is no more evident than during the GFC - why did our spreads widen if there was neither a domestic economic recession nor a subprime housing sector?” he added.

“The answer is that global funding markets are interrelated. Australia’s credit markets are global in nature, with about 50 per cent of the value of the Australian corporate bond market issued by global companies.

“Additionally, Australian institutions derive much of their funding from offshore markets, particularly the major banks so when global liquidity seizes up, it flows through to domestic balance sheets.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

GG

So shareholders lose a dividend plus have seen the erosion of value. Qantas decides to clawback remuneration from Alan ...

2 months 1 week ago
Denise Baker

This is why I left my last position. There was no interest in giving the client quality time, it was all about bumping ...

2 months 1 week ago
gonski

So the Hayne Royal Commission has left us with this. What a sad day for the financial planning industry. Clearly most ...

2 months 1 week ago

A Sydney-based financial adviser has been banned from providing financial services in the interest of consumer protection after failing to act on conduct concerns. ...

3 weeks 5 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

18 hours ago

ASIC has cancelled the AFSL of a $250 million Sydney fund manager, one of two AFSL cancellations announced by the corporate regulator....

3 weeks 3 days ago