Australian government bond yields have hit record lows, with little sign of improvement, prompting calls for investors to safeguard their portfolios against risk.
The growth outlook for the Australian economy, which has fallen from the beginning of the year, and global uncertainty were cited as reasons for the dip.
PIMCO head of global wealth management Peter Dorrian said that while there were unsolved risks in the United Kingdom and United States, Australian bond yields would remain low.
Europe is still a long way from solving the most significant problems it has in terms of debt levels and the widespread distribution of that debt throughout the European banks.
“Until that is property resolved that is going to be a running sore for markets, probably for the next six months,” Dorrian said.
In the US, reopening of debt ceiling negotiations and the expiry of tax cuts and advantages at the end of the year are also contributing factors.
“That’s definitely going to have an impact on investor sentiment and then on the real economy during the course of 2013,” Dorrian said.
“All of that says to us there is a clear reason why bond yields remain at low levels. There has been a fundamental shift in many investors’ thinking that they want to de-risk their portfolios, and the outlook for global growth remains very subdued.”
He said that with low growth and market volatility, investors should be looking to safeguard their portfolios and boost returns.
There is a range of different strategies to mitigate that risk for investors. The most basic was moving out of fixed coupon bonds, which tended to be issued by governments, and increase the proportion of floating rate bonds, which tended to be issued by corporates, he said
“We would still say that given most Australians are quite underweight bonds relative to other investors around the world, that there is still definitely some additional room in their portfolio for high-quality fixed-income securities,” he said.
“We think, as a result, yields are going to keep much lower for much longer.”
