THE DISTILLERY: ASX applause

It was years in the making, but yesterday's announcement that the Australian Securities Exchange will begin trading Commonwealth government bonds later this month has the unanimous support of Australia's commentariat. In a rare display of solidarity, scribes have thrown up their hands and declared: it's about time.

Tony Boyd, The Australian Financial Review's Chanticleer columnist, says the decision could help temper Australia's risky obsession with equities. Those planning for retirement should rejoice.

"It is wise to maintain a ­proportion of superannuation savings in growth assets such as equities and property, but Australia has tended to hold higher amounts of these assets than other countries. A strong equities culture has been encouraged by the lack of freely available fixed-interest investments such as government bonds. If Australians opt for greater diversification in their investment portfolios, it will contribute to less volatility in super balances and less likelihood of needing to fall back upon the government pension."

While lamenting that the ASX market comes at a time when government bonds aren't yielding much at all, The Australian's John Durie says there might still be some value left.

"Right now is probably not the ideal time to launch a fixed income retail product given that record low yields means prices are also at record high levels. But it’s a relative game and if Westpac’s Bill Evans is right and the cash is headed down to 2 per cent by the first quarter next year then you will be ahead if you buy now. Suffice it to say, if the economy is so weak that it demands another three rate cuts then the safety of long-term government bonds will also be attractive."

At Business Spectator, Stephen Bartholomeusz views easy access to Commonwealth bonds as a kind of insurance against the inevitable unwinding of the current risk rally.

"At present investors are being pushed into riskier asset classes by the meagre fixed interest yields on offer in a world awash with near-costless central bank credit and heavy interventions by central banks in debt markets. At some point – and it could be quite a 'messy' point – the plunge into those higher-risk asset classes which have, in this market, prompted discussions about bank share price 'bubbles', will reverse and investors will look for low-risk assets with certain income streams. At that point the new ASX market could come into its own."

On a side note, Michael Pasco is down on fixed interest. In fact, the Fairfax jotter only seems to see one positive in the most recent reduction in Australia's cash rate: "If the Reserve Bank has forced you to realise your term deposits are duds, the mandarins have done you a favour."

"Savers dependent on fixed interest have been poorly advised for decades, not just over the past year as interest rates have tumbled. The dividend flow from a boring portfolio of industrial stocks trounces fixed interest and whatever the best daily rate might be from the online banks. And right now, even after the market has rallied to start the year, equity yields slaughter the best term deposit rates you could have grabbed last year. Of course the yields aren’t as tasty as they were in January or as extremely tasty as they were a year or two ago, but they’re still fine in the general scheme of things."

At The Australian, economics editor David Uren is also still poring over the Reserve Bank's rate cut. He takes the somewhat contrarian view that the central bank was not aiming to lower the lofty Australian dollar — he says the bank's "internal studies show there is no statistically reliable connection between the exchange rate and the gap between Australian and overseas interest rates."

Meanwhile, the newspaper's foreign editor Greg Sheridan has penned a correspondence from China, touching on politics, the economy and infrastructure. But if anything, he's even more confused about the nation's future than when he arrived. 

Also on foreign affairs, Karen Maley, blogging for The Australian Financial Review, examines Portugal's return to global bond markets, which is being hailed as a great success.

Maley's papermate Matthew Stevens is pessimistic about the future of the local coal industry, especially after running an eye over the Australian Coal Association's pre-budget submission the government.

"Australian coal has emerged from the decade-long resources boom with an embedded cost base and a price outlook that threatens the survival of many and the growth ambitions of most."

Finally, in M&A news, The Australian's Tim Boreham is unfazed by the collapse of SFG Australia's tilt at WHK Group, and Fairfax's Michael West seems to think Equity Trustees might be next on Perpetual's shopping list.