In its latest market update, T. Rowe Price said it has moved to an overweight position in Australian bonds due to the economic outlook, the Reserve Bank’s easing bias and the carry versus other developed markets.
“The Reserve Bank of Australia is likely to continue with more rate cuts until the end of 2025 as labour market weakens,” the global investment giant said.
It added, while Australia is not a primary target of US tariffs, the economy is expected to slow down in the coming months due to weaker domestic support and a more challenging global demand environment.
While its confidence in Australian bonds has increased, the global investment giant maintained an underweight position in global bonds on expectations of persistent rate volatility, mixed growth and inflation data, as well as policy uncertainty.
“We remain overweight spread sectors including high yield, emerging market bonds, and floating rate loans on attractive all-in yields. Fundamentals remain supportive, although spreads are vulnerable to impacts of trade uncertainty,” it said.
AMP’s Shane Oliver agrees with T. Rowe Price’s favourable outlook for Australian bonds.
“Australian bond yields are likely to move lower (i.e. bond prices rise) as global growth slows and Australian economic growth picks up by less than previously expected, inflation falls here and the RBA cuts rates several times this year,” he told InvestorDaily.
Speaking at Momentum Media’s Election 2025 event last week, the chief economist said he does not foresee a recession in Australia but warned that a slowdown is likely as tariffs begin to weigh on economic activity.
“The impact on growth in Australia is nowhere near as great as it may be on a China, or a Canada or a Mexico and the other thing is that many of our exports are fungible, you can just find another market,” Oliver said, adding that a dip in the Australian dollar is helping offset the tariffs.
“And the Reserve Bank has plenty of scope to cut interest rates so yes, growth won’t be as strong as previously thought but I don’t think we’ll go into recession.”
Last month, in a piece penned for InvestorDaily, Matthew Macreadie, head of credit strategy and portfolio management at Income Asset Management, said “Australian bonds are set to stand out in 2025.”
T. Rowe Price neutral on global equities
On global equities, T. Rowe Price said it remains neutral with a cautious stance, though it expects European equities to continue gaining on upside economic surprises, the potential for increased fiscal spending, and reasonable valuations.
As such, the investment firm said it has moved overweight European equities from underweight last month.
“Despite tariff uncertainty, sentiment toward the region has quickly shifted and flows are following,” it said. “We see this as more than a short vacation, and are adding to European equities, on upside potential to capex spending and lending.”
Like its US counterparts, T. Rowe Price remains underweight Australian equities on the back of “weaker” earning prospects, coupled with still elevated valuations.
US equities, it said, face a difficult near-term environment given extreme policy uncertainty, potentially peaking capex spending, and elevated valuations.
“Given the heightened risk, we continue to lower our equity exposure,” the global investment giant said. “Key risks to global markets include escalating trade wars’ impact on growth and reaccelerating inflation, central bank missteps, and geopolitical tensions.”
