T. Rowe Price positions for further rate cuts
T. Rowe Price has moved overweight Australian bonds in its global asset allocation ahead of an additional rate cut by the Reserve Bank of Australia (RBA).
The RBA cut rates to 0.50% earlier this year and it is expected they will cut further in April and then potentially onto a round of quantitative easing (QE).
This is a situation being echoed around the world with the Federal Reserve and Bank of England also cutting rates.
The Fed made an emergency 1% cut to 0%-0.25% on Sunday night and a commitment to purchase at least $700 billion in its QE programme over the next few months.
In an update, managers Richard Coghlan, Randal Jenneke, Thomas Poullaouec and Wenting Shen said: “Australian yields sensitive to the economic momentum, change in risk sentiment and re-pricing of the RBA. Domestic yields haven’t moved as much as their global peers and could catch up in the near term.
“Further policy support is highly likely in the form of an additional rate cut and more fiscal stimulus.”
They had also moved underweight global bonds as they felt they were expensive and reduced exposure to emerging market bonds.
“We remain underweight global bonds given how expensive they are. With a one-year time horizon, we prefer risky assets over sovereign bonds.
“We reduced our exposure to emerging market bonds as they may be vulnerable to further downside risk given current valuation levels and a growing list of idiosyncratic concerns.”
AUTHOR
Laura Dew
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