Investors flee sinking bond funds after $ 2.6 billion fall

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“People sell first and ask questions later,” said Angus Coote, co-founder and chief investment officer for Jamieson Coote Bonds, a fixed income fund manager in Melbourne. “It could create value if inflation is indeed transient.”

The specter of rising consumer prices in the global economy has fascinated investors and pressured central banks to consider advancing interest rate hikes to thwart rapid inflation.

Financial market prices now reflect expectations that the Reserve Bank of Australia will raise interest rates for the first time since the pandemic in August next year, after previously indicating that the first increase would occur later in 2022.

This indicates that investors are convinced that inflation concerns will prompt the RBA to raise its policy rate much sooner than the 2024 horizon it has long suggested. The spot rate is at an all time high of 0.1 percent.

“Central banks face a fine line,” Mr. Coote said. “If inflation is not as transient as they thought it would either be increasing now and it’s too early and causing a double dip recession, or they are not decreasing fast enough and there is too much liquidity. , which causes inflation. “

The rapid fall in the value of Australian bond funds this year wiped out more than $ 100 million from 11 of the 58 listed portfolios tracked by EPFR.

The Advance Australian Fixed Interest Multi-Blend Fund, one of the largest of its kind with over $ 2 billion in assets, has lost nearly $ 150 million in value since the start of the year due to the fall in the price of government bonds, according to EPFR. The data.

The Legg Mason Australia Monthly Dividend Fund, which oversees $ 1.4 billion, is another that has suffered losses on paper on the bonds it holds.

The portfolio is down 1.5% this year, roughly in line with the Bloomberg AusBond Composite Index to which it is benchmarked, and is heading for its worst year in at least a decade, according to company data.

The prospect of a sharp rise in consumer prices has started to weigh on global financial markets beyond government bonds.

Tech companies are among the most sensitive to rising prices and, as inflation concerns escalated further last week, tech stocks came under selling pressure.

On Friday in the United States, the tech-rich Nasdaq stock market index fell 1%, while the broader market fell only 0.1%.

“I think you see a lot of speculative money pushing the markets,” Mr. Coote said. “From my perspective, bonds have sold, and I’m surprised other asset classes haven’t done so yet. I think we might see it in the next week or two.

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