Bond Index performance September 2016

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September was a mixed month for bonds with some of the indices returning negative numbers and some returning positive numbers. The best performing index for the month was the Floating Rate Note index, which returned +0.26%. FRNs tend to outperform fixed rate bonds when rates are rising as their rates ‘float’ – ie: move in the general direction of rates.

The next best performing index was the bank bill index with a steady +0.14%, closely followed by the corporate bond index at +0.115%. Corporate bonds did not rise as much as government bonds and generally have a shorter duration (meaning they are less sensitive to interest rate moves than longer dated government bonds).

The worst performers for September were government bonds at -0.385%, the composite bond index at -0.225% and semi government bonds at -0.16%.

Central banks dominated thinking about bond yields as they grappled with the effectiveness of quantitative easing and stimulating their respective economies. The Bank of Japan tried a completely new twist to its strategy while the US Fed invented another excuse as to why it couldn’t raise rates. In Australia, the announcement of a new 30 year bond saw longer dated yields rise as investors readied themselves for the new issue.

Government bonds are still the best performer over 12 months at +6.11%, closely followed by the composite bond index at +5.69%, semi government bonds at +5.66% and corporate bonds at +5.25%.

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Bloomberg

Security1m Return (%)12m Rolling Return6m Rolling Return
Bank Bill0.1422.191.44
Composite Bond-0.2255.694.67
Government Bond-0.3856.115.13
Semi-Govt Bond-0.1575.664.51
Corporate Bond0.1155.254.29
FRN0.2613.272.38

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