Bond yields started the month on a rising trend. The ECB’s minutes of its June meeting provided more evidence of a central bank on a countdown to removing its easing bias. This lasted until shortly into the second week when yields started to fall away as the spotlight returned to U.S. politics and the reduced likelihood of any pro-growth policies coming to fruition. Janet Yellen’s testimonies before various committees of the U.S. Congress reinforced the very gradual nature of the reduction in the Fed’s balance sheet but yields then rose in most markets when Mario Draghi was reported to be a fixture at Jackson Hole amid speculation his speech would signal of the beginning of the end of ECB asset purchases. However, soft U.S. June CPI and retail sales figures overshadowed all of that.
Once the Republicans failed to repeal/replace the Affordable Care Act (“Obamacare”), doubts regarding the Trump administration’s ability to achieve pro-growth legislative action were entrenched and yields fell. However, over in Europe, while the ECB kept monetary policy unchanged, there was a faint signal its asset-purchase plan tapering will be considered in the European autumn.
In the last week of the month, not much happened in international markets but RBA chief Philip Lowe gave his Anika Foundation speech which kept the lid on bond yields, especially at the short end even as offshore yields tended to rise.
The net effect by the end of the month was of lower bond yields in almost all major markets except in Germany. In the U.S., the yield on 2 year bonds fell 3bps to 1.35% while 10 year bond yields remained unchanged at 2.30%. The U.S-Australia spread widened by 3bps to 38bps as the local 10 year yield (implied by September futures) increased by 3bps to 2.68%. The 3 year yield went in the opposite direction and was 3bps lower at 1.95%, the result of the RBA’s comments from Philip Lowe’s speech. Ultra-long bonds moved in line with 10 year bonds and gained 3bps to 3.24%.
As a result, all Bloomberg AusBond indices which comprise fixed-interest securities fared reasonably, and all cash and bond indices were in positive territory. The Corporate Bond Index produced the highest return of +0.55% as spreads tightened. The FRN Index was next with 0.365%. Returns produced by the Semi-Government and Composite indices were reasonably close together at 0.289% and 0.248% respectively and the Bank bill index produced a 0.146% return. Investors in ACGBs fared the worst; the Government Bond Index returned 0.112%, the worst of the indices and the result of higher yields at the long end of the curve.
Overall, conditions were quite good for binds funds and all bar one of 35 funds finished in the black. The best performing fund was the Alpha Enhanced Yield Fund which returned 0.58% for the month, followed by BT’s Enhanced Credit Wholesale Fund and its 0.49% return. The Alexander Credit Opportunities fund also returned 0.49% but it was ever so slightly less than BT’s fund and thus took third position.
Over a 1 year period to the end of June, the Alexander Credit Opportunities fund was again ranked with 7.05% while Spectrum’s Strategic Income Fund retained its second position with a return of 4.95%. AMP’s Capital Corporate Bond fund held on to its third-ranked position with a 12 month return of 3.72%.
AUSTRALIAN FIXED INTEREST FUNDS
|AUSTRALIAN FIXED INTEREST||ASX|
|1m (%)||3m (%)||1y (%)||3y (%)||5y (%)|
|Aberdeen Australian Fixed Income||mfund||0.24||0.45||-0.41||4.08||4.22|
|Advance Aus Fixed Interest Multi-Blend||0.13||0.23||-1.27||2.63||3.07|
|AMP Capital Corporate Bond||mfund||0.28||0.83||3.72||3.12||4.71|
|Alexander Credit Opportunities Fund||0.49||1.63||7.05||7.32||9.66|
|Alpha Enhanced Yield||mfund||0.58||1.53||3.24||2.54||3.99|
|AMP FLI S2-AMP Australian Bond||0.20||0.30||-0.80||3.03||3.79|
|AMP Gen-BlackRock Aust Fixed Int Ind||0.15||0.21||-1.34||3.03||3.10|
|BT Enhanced Credit WS||0.49||0.85||2.14||4.24||4.90|
|BT Fixed Interest Retail||0.18||0.37||-1.55||2.88||2.92|
|BT Fixed Interest WS||0.25||0.49||-1.19||3.75||3.80|
|BT Government Bond||0.20||0.59||-1.32||4.05||3.77|
|CFS FC Inv-Aberdeen Aus Fixed Inc||0.10||0.18||-1.24||3.02||3.10|
|CFS FC W Inv-CFS W Australian Bond||0.23||0.37||-0.40||3.33||3.82|
|DDH Fixed Interest||0.24||0.48||-0.31||3.75||4.34|
|Spectrum Strategic Income||mfund||0.45||1.16||4.95||4.63||7.22|
|Jamieson Coote Bonds Active||0.11||0.26||-0.67|
|Legg Mason Western Asset Australian Bond Trust A||mfund||0.35||0.71||0.38||4.40||5.00|
|Macquarie Australian Fixed Interest||0.21||0.45||0.57||4.23||4.73|
|Macquarie Core Plus Australian Fxd Intr||-0.38||2.07||2.38||4.32||4.96|
|Mercer Australian Sovereign Bond Fund||0.12||0.36||-1.62||4.05||3.71|
|Nikko AM Australian Bond||0.32||0.60||-0.05||4.08||4.37|
|Omega Core Australian Bond Fund||0.23||0.48||-0.15||4.05||4.04|
|OnePath OA FR IP-Optimix Aus Fixed Int||0.17||0.33||-0.24||3.45||3.84|
|Henderson Australian Fixed Interest Tr||0.30||0.53||0.40||4.12||4.86|
|Henderson Fixed Interest Wholesale||0.29||0.50||0.29||4.00||4.73|
|Henderson Tactical Income Trust||0.34||0.75||2.57||3.08||4.28|
|Perpetual WFIA-Schroder Fixed Income||0.12||0.14||-0.81||2.12||2.79|
|Perpetual WFIA-Vanguard Aust FI Idx||0.14||0.21||-1.46||2.93||2.98|
|PIMCO EQT Wholesale Australian Bond B||mfund||0.30||0.48||-0.04||4.24||4.27|
|PIMCO EQT Wholesale Australian Focus B||mfund||0.24||0.63||1.45||3.20||3.49|
|SSgA Australian Fixed Income||0.17||0.49||-0.33||4.13||4.10|
|UBS Australian Bond||mfund||0.26||0.59||0.15||3.97||4.28|
|Vanguard Australian Fixed Interest Index||0.24||0.95||-0.42||4.04||4.09|
|Vanguard Australian Govt Bond Index||0.16||0.31||-1.27||4||3.83|
|Bloomberg AusBond Composite 0+Y TR AUD||0.25||0.51||-0.24||4.24||4.30|
*End of July 2017. Return in AUD after fees