Schroders Australia is adjusting its fixed income portfolio in response to the Australian bond market’s pricing of the Reserve Bank of Australia’s (RBA) anticipated easing cycle. Kellie Wood, head of fixed income at Schroders Australia, stated that the market has largely priced in the expected rate cuts, prompting the fund manager to reposition its interest rate exposure. Schroders is a global asset manager offering a range of investment solutions to institutions, intermediaries and individuals around the world. In Australia, Schroders manages investments across a broad range of asset classes.
“With around 75 basis points of easing priced over the next year, we think that’s about fair,” Wood said. As a result, Schroders has moved a significant portion of its interest rate exposure from the front end of the yield curve to the belly, or middle, of the curve. Wood anticipates the RBA will commence cutting rates in August, followed by one to two additional cuts over the subsequent year, potentially bringing mortgage rates back towards 3 per cent.
While the short end of the curve has already factored in much of the expected policy shift, Wood sees potential for gains further out the curve as global economic growth begins to decelerate. She added, “We’re still constructive on Australian duration. The back end of the curve should start to perform as growth slows globally.”
In addition to adjusting its Australian bond portfolio, Schroders is also implementing relative value positions across different markets. The firm is maintaining a short duration stance in Europe while holding long positions in the front end of the UK yield curve, reflecting its assessment of the relative attractiveness of different fixed income markets.
