‘Safe and stable’ fixed income slowly reclaiming portfolio spot

Fixed income has moved to assert its dominance as a ‘safe and stable’ option for investors amid falling global cash rates and over-enthusiasm in equity markets, according to new commentary.

Darren Connolly, InvestmentMarkets’ chief executive, said this activity signals an appetite shift in investors who are also seeking untapped opportunities for diversification during a period of volatility.

“Investors have enjoyed higher cash returns in recent years, but as those rates fall away, they are looking for alternatives. Fixed income is emerging as a key part of that search, particularly for investors who want to protect capital and maintain income levels,” he said.

“Fixed income has long been overlooked in private portfolios, often because it was seen as complex or hard to access.

“But what we’re seeing now is investors realising that bonds and loans aren’t just defensive, they can be a meaningful source of yield and liquidity, particularly when equity markets look stretched.

“Fixed income is the ballast in portfolios, the part that lets investors, particularly retirees, sleep at night. It may have the reputation of being boring, but right now, for many, boring looks very appealing.”

Cameron Window, Executive Director at Income Asset Management (IAM), also echoed this sentiment, with long-dated fixed-rate bonds now firmly in investors’ sights.

“Banks have been issuing 10-year paper in the 5.5 to 6.5% range, and those deals are oversubscribed many times over,” he said.

“There’s a huge amount of money sitting on the sidelines, and when investors see the chance to lock in future income at those levels, they are jumping all over it.

“Many investors default to funds or ETFs for fixed income exposure, but direct access gives you control. You know exactly what you hold and you can express your own view on interest rates. We also provide access to syndicated loan markets, investing alongside major institutions like super funds and investment banks. That’s a part of the market investors often don’t see.

“[One example is a recent Foxtel syndicated loan, issued after its acquisition by global sports provider DAZN]. It was a senior secured facility paying bank bill swap rate plus 5.00%+, effectively delivering 9%+. For wholesale investors, that’s a high-yielding, institutionally-backed deal with meaningful asset security.”

Given this level of opportunity, Window believes there to be plenty more in the outlook ahead for fixed income.

“With interest rates expected to continue to fall, we know bond prices will rise,” he said.

“That gives investors not just steady income but also the potential for capital gains. At the same time, the phasing out of listed hybrids is forcing billions of dollars to find a new home. We’re already seeing that money flow toward opportunities in this space.”