Following the RBA’s decision to hold rates, Chris Viol, Executive Manager of Fixed Income at Commonwealth Private, shares his thoughts on smarter strategies beyond term deposits and hybrids in a falling yield environment.
Hi, I'm Chris Viol, Executive Manager of Fixed Income here at Commonwealth Private. Right now, fixed income investors are benefiting from much higher portfolio yields driven by elevated base rates. But many clients are asking how they can take advantage of these yields, especially with two developments in the domestic fixed income market. Firstly, turn deposit rates have dropped materially and secondly, bank hybrids are being phased out now. Commonwealth Private We've recognised these challenges and put in place key investment strategies to assist. So let's start with turned deposits. In previous years, high net worth clients could secure rates above 5% on their turn to profits. But since the rate cutting cycle from the RBAC turned to poverty, rates have come down materially. Today, clients rolling over that term deposit investments are seeing rates closer to 3%. Given this, we believe there's merit in moving away from short term cash products like TD and into alternative fixed income investments. That offer moderately high yields but are still mainly investment grade. Now, with portfolio yields much higher, the return potential is far greater than it was five years ago. Many clients are navigating the balance between seeking high yields but maintaining A defensive stance. In this context, approaches to fixed income that incorporate yield and risk considerations are becoming more relevant. To this end, our guiding principle. Simple fixed income should be a defensive asset class with capital objectives also a key focus in addition to delivering on a medium term return target. Now let's talk about bank forbids further along the risk spectrum. April's decision to phase out bank hybrids means that around 40 billion of ASX listed hybrids will disappear by 2032. Most of this capital will be reissued as subordinated debt or Tier 2 bonds. So when these hybrids are called and redeemed, investors will need replacement options. We've anticipated this change and develop yielded harassed. Fixed income strategies that are risk considered and capital focus. Of course, when deciding where to redeploy your hard earned capital, it's essential to remain discerning and choose the fixed income investment that best suits your risk and return profile. We know each clients needs are different, so please reach out to your banker or get in touch today to learn more.
