InvestSMART Interest Income Portfolio Update - December 2018
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.
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Frequently Asked Questions about this Article…
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.
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.
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.
No, the Reserve Bank of Australia (RBA) did not make any major changes to its rate outlook for 2019 during the final quarter.
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.
The Bank Bill Swap Rate (BBSW) fell throughout the final quarter as growth assets were liquidated and investors opted to remain in cash.
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.
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.