Company bonds in Australia a safe refuge
Corporate debt in Australia is providing one of the best refuges from global financial market volatility this quarter.
Adjusting for the magnitude of price swings, a Bank of America Merrill Lynch gauge of Aussie corporate notes delivered a 1.2pc gain since March 31, surpassing similar indexes for the US, Canada, UK, Japan and the eurozone, according to data compiled as of June 16. It's also beating indexes for developed market sovereign debt and the MSCI World Index of equities.
"Looking at the market on a whole, it's a reasonably high-rated market which brings an element of comfort and provides less volatility as a result," said Gavin Goodhand, who helps oversee about $490m in fixed-income assets at Altius Asset Management in Sydney.
Measures of global volatility have spiked in recent weeks as the UK referendum on European Union membership approaches on June 23, while a dialling back of bets on US interest-rate increases is also causing disquiet.
The gauge of stock market turbulence known as the VIX last week saw its biggest one-day lurch upward for 2016, while Group-of-Seven currency volatility climbed to levels unseen since 2011 and expected one-week price swings for the pound surged to a record.
Mr Goodhand said that Australia's banks, the mainstay of the local credit market, performed well compared to global peers even during the 2008 crisis, while some of the largest domestic issuers such as Telstra Corporation and BHP Billiton are strongly rated.
The relative strength of the nation's economy is also supportive of the Aussie credit market, with the country having avoided recession for a quarter century. (Bloomberg)