Fixed-rate bonds pose more risks to investors

bonds funds

21 September 2017
| By Oksana Patron |
image
image
expand image

The negative performance of the headline bond index in Australia highlights the risks that traditional fixed-rate bond investments currently pose to investors, according to BetaShares.

The fixed-income investors who are seeking the defensive characteristics of bonds should look at floating rate bonds as a more attractive alternative to fixed rate bonds in the current market environment, the company said.

According to its study, “Bonds behaving badly? An analysis of recent fixed vs. floating bond returns”, higher bonds were leaving Australian fixed-rate bond index investors exposed to potential losses.

“Floating rate bonds posted good returns over the past year, and appear well placed to continue to perform strongly,” BetaShares’ managing director, Alex Vynokur said.

He explained that the challenge with the headline bond index in Australia is dominated by fixed-rate government and corporate bonds, meaning its capital return was highly sensitive to the changes in the general level of interest rates.

At the same time, the price of floating rate bonds was much less sensitive to changes in the general level of market interest rates.

“Accessing floating rates bonds has traditionally been difficult for the majority of investors, because of the high minimums required in institutional bond markets, and administrative burdens involved,” Vynokyur said.

The recent rise in bond yields, the capital return from the Bloomberg AusBond Composite Index (BACI) declined by around three per cent in the year to end-August 2017.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

3 days 1 hour ago

Interesting. Would be good to know the details of the StrategyOne deal....

1 week ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

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....

3 weeks ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

6 days 4 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

5 days 7 hours ago