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Fixed income 'not providing buffer expected'

Fixed income has not been providing the portfolio protection in the current market volatility that investors might expect, MyFiduciary principal Chris Douglas says.

Monday, March 30th 2020, 9:29PM

Chris Douglas

Share markets around the world have slumped as the effects of Covid-19 spread. Many have fallen between 25% and 30% from peak to trough.

Douglas said it had been notable that, starting from such a low interest rate base, there had not been a fixed income lift to offset as much of that drop as had been seen in previous downturns – particular compared to the defensive boost it had provided in the global financial crisis.

“The only asset class that has provided a return is cash … the official cash rate has dropped from 1% to 0.15% but we’ve still got Government bonds selling off.”

Greg Bunkall, at Morningstar, said bond funds had played a significant role in defending capital. “While traditionally you hoped bonds would be even more supportive – they are still doing a job here in limiting losses.”

Morningstar data showed that bond funds had lost an average 1.83% in the last week and almost 2% since the start of the month.

Murray Harris, head of distribution and KiwiSaver at Milford Asset Management, said the global financial crisis interest rate fall had been more significant – then, it involved rates falling from 7% or 8% to 1%.

But he said there was more than just interest rates that would drive fixed income returns – moves such as quantitative easing would also support the corporate bond market.

“We did see credit spreads blow out in the fear and panic selling but that’s coming to a stop now. Fixed interest has cushioned the fall as you would expect, compared to growth assets. It’s still had a dip because everything has sold off but it’s nothing near the extent of equity markets. It will recover.”

Tags: bonds Chris Douglas Fixed interest Markets

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Lender Flt 1yr 2yr 3yr
AIA 4.55 3.55 3.89 3.99
AIA Special - 3.05 3.39 3.69
ANZ 4.44 3.29 3.45 3.85
ANZ Special - 2.79 2.95 3.35
ASB Bank 4.45 3.35 3.19 3.85
ASB Bank Special - 2.85 2.69 3.35
Bluestone 4.44 4.44 4.29 4.34
BNZ - Classic - 2.79 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.39 3.29 3.59
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BNZ - TotalMoney 4.55 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 2.80 3.15 3.19
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
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Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.80 2.89 3.50
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 4.40 2.95 2.95 3.69
Kainga Ora 4.43 ▼3.29 ▼3.39 ▼3.85
Kiwibank 4.40 3.74 4.14 4.40
Kiwibank - Capped - - - -
Kiwibank - Offset 4.40 - - -
Kiwibank Special - 2.65 2.79 3.25
Liberty 5.69 - - -
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Wairarapa Building Society 4.99 3.95 3.99 -
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Median 4.55 3.32 3.39 3.69

Last updated: 3 June 2020 3:56pm

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