InvestSMART Interest Income Portfolio Update - December 2018

Portfolio produced a return of 1.66% (after fees) during the December quarter and no changes were made.

By Evan Lucas · 16 Jan 2019

By Evan Lucas ·
16 Jan 2019 · 5 min read

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iShares Treasury ETF (IGB) and the Vanguard Australian Government Bond Index ETF (VGB) added 0.96% and 0.64% respectively as the Australian bond market saw strong inflows during the quarter as risk-off sentiment grew. The Australian 10-year bond yield fell 36 basis points (0.36%) over the quarter to its lowest level since November 2016 illustrating just how strong the demand for bonds was in the final quarter. The RBA made no major change to its RBA rate outlook for 2019 and we saw no change to Australia’s AAA credit rating either (nor have the major rating agencies put it under review). With Australia’s AAA credit rating remaining rock solid the Australian bond market remains an attractive investment option for money that’s looking for safety.

Looking to the floating notes and money market side of the portfolio, the Bank Bill Swap Rate (BBSW) fell throughout the final quarter as growth assets were liquidated and investors remained in cash. Note yields moved lower as capital appreciated, seeing FLOT and QPON both attributing to the overall performance of the Interest Income Portfolio.

The Interest Income Portfolio remains a domestically focused interest portfolio. It provides a solid, defensive option for investors looking to add defensive assets to their existing portfolio structures or those looking to protect their capital.

To see more information on our Interest Income Portfolio, click here.

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Frequently Asked Questions about this Article…

What is the performance of the iShares Treasury ETF (IGB) and Vanguard Australian Government Bond Index ETF (VGB) in the final quarter?

In the final quarter, the iShares Treasury ETF (IGB) added 0.96% and the Vanguard Australian Government Bond Index ETF (VGB) added 0.64%, reflecting strong inflows into the Australian bond market.

Why did the Australian bond market see strong inflows during the final quarter?

The Australian bond market experienced strong inflows due to a risk-off sentiment among investors, leading to increased demand for bonds as a safe investment option.

How did the Australian 10-year bond yield change in the final quarter?

The Australian 10-year bond yield fell by 36 basis points (0.36%) over the final quarter, reaching its lowest level since November 2016, indicating strong demand for bonds.

Did the Reserve Bank of Australia (RBA) make any major changes to its rate outlook for 2019?

No, the Reserve Bank of Australia (RBA) did not make any major changes to its rate outlook for 2019 during the final quarter.

What is the current status of Australia's AAA credit rating?

Australia's AAA credit rating remains rock solid, with no changes or reviews from major rating agencies, making the Australian bond market an attractive option for safety-seeking investors.

How did the Bank Bill Swap Rate (BBSW) perform in the final quarter?

The Bank Bill Swap Rate (BBSW) fell throughout the final quarter as growth assets were liquidated and investors opted to remain in cash.

What role do floating notes and money market instruments play in the Interest Income Portfolio?

Floating notes and money market instruments, such as FLOT and QPON, contributed to the overall performance of the Interest Income Portfolio by appreciating in capital as note yields moved lower.

Who might benefit from investing in the Interest Income Portfolio?

The Interest Income Portfolio is ideal for investors looking to add defensive assets to their existing portfolio structures or those aiming to protect their capital with a solid, domestically focused interest portfolio.