FI investors confidence hit by high inflation

Oksana Patron

3 May 2023

Australian fixed-income (FI) investors believe that stubbornly high inflation is likely to become the most serious risk to Australian credit markets over the next 12 months.

According to the Fitch Ratings survey of Australian FI investor 2023, this came at a time when 74% of investors were looking to increase their allocation to this asset class.

On top of that, the majority of investors participating in the survey (89%) said that rising interest rates would continue to dampen corporate growth prospects, with the most severe impact on real estate investment trusts (REITs).

More than 75% of investors also expected banks to tighten their lending standards, albeit only temporary, as one fourth of surveyed investors said the house price rise in 2024 would be likely.

At the same time, property and the macro-economy have been identified by investors as the two key risks to bank credit quality, given further monetary policy tightening.

The 2023 survey also confirmed that investors were willing to accept a higher spread to appropriate swap benchmark compared with the 2022 survey and this held true across all 10 asset classes surveyed, with bond issuance being the most likely to come from financials, excluding structured finance, and sustainable/socially responsible bonds.