Worried about another rate hike? State Street says high probability multiple hikes are coming

Описание: 2022 was one of the worst years on record for bond investors, with double-digit negative returns in ‘core’ bond portfolios. After a thorough beating inflicted by aggressive interest rate hikes from central bankers, investors have asked if 2023 is the year to start adding ‘duration’ back to portfolios to capitalise on higher yields.

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Simon Mullumby, Head of Australian Cash and Fixed Income at State Street Global Advisors, has been openly cautious about rushing back into long-duration assets. He had this to say back in March:

“Whilst most would agree that the relative attractiveness of duration has improved, the return journey for bond investors is unlikely to be a smooth one for the simple fact that a 30-year bond bull market cannot be unwound over a 12-month period.”
It has proven to be an astute call, and he still believes it is premature to start adding duration back to portfolios. He thinks the Reserve Bank of Australia has plenty of work to get inflation back to its target range. And whilst many are debating if there are any more hikes to come, Mullumby believes there are multiple hikes to come, pushing the official cash rate above 4.5% in 2024.

In this short video, Simon outlines why he believes a soft landing is likely and that the prospect of a tranche of rate hikes sees him favouring short-duration bonds and floating rate notes.

Key points

The RBA is in good hands and the rate hikes are slowing the economy
High inflation and low unemployment suggest the RBA is not done, and more rate hikes are probable.
Simon believes there is a risk of a further sell-off in bonds and prefers short-duration bonds and good-quality credit over long-duration bonds.

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