Investing

Don’t stick your head in the sand …

  • 22.JUL.2019
  • Simon Riordan,  XTB

… Rates are likely to fall further.

Lock in 2.4% p.a. with Vicinity XTBs

If you could lock in a 3.2% yield to maturity with exposure to a fixed rate investment-grade (Qantas 2022) bond today, would you?

Most likely your answer would be yes. Two years ago, we had a number of XTBs with 3.2% YTM. Many of our clients did take advantage. Most now wish they had bought more.

If interest rates continue to fall, will you look back and regret not locking in a Vicinity 2027 XTB with 2.4% YTM?

The institutional futures market is forecasting one more interest rate cut in the next six months. And many analysts are calling for two cuts. So, there’s the possibility of more cuts and term deposit rates struggling to reach 2% today¹. What will the returns available today look like in a few months, or a year from now? Will you regret not locking in these rates?

ASX Interbank Cash Rate Future Implied Yield 4 Jul 2019

Source: ASX 4 July 2019

Lock in your rate, but trade if you need

XTBs allow clients to lock in a yield to maturity for a set period of time. However, as XTBs are ASX traded you can sell at any time. We know the majority of term deposit investments are held in 3 and 6 month TDs as clients like the flexibility they provide. However, in a falling interest rate environment it’s important to remember that each reinvestment is highly likely to occur at a lower rate.

XTBs do not enjoy the benefit of protection under the Financial Claims Scheme which some TDs may have. However, the underlying bonds are issued by investment grade blue chip companies. They also come with the added benefit that if, rates continue to fall XTBs have the potential for capital gains.

Call us to discuss how your clients can lock in a higher return by buying fixed rate XTBs.

Please note that past performance is no guarantee of future performance. The performance of fixed rate bonds or XTBs, has been positively impacted by recent interest rate cuts, whilst there is an expectation of further interest rate cuts, as evidenced by the futures market pricing, once the interest rate cycle turns, it is likely that the performance of fixed rate bonds will be negatively impacted.

Source: Canstar Top 4 Bank 3 or 6 month Term Deposit $100k 11 July 2019 – 1.75%

Disclaimer
The information in this article is general in nature. It should not be the sole source of information. It does not take into account the investment objectives or circumstances of any particular investor. You should read the PDS that relates to that Class of XTB prior to making an investment decision and consider, with or without advice from a professional adviser, whether an investment is appropriate to your circumstances. Australian Corporate Bond Company Limited is the Securities Manager of XTBs and will earn fees in connection with an investment in XTBs.

Events

  • 24Aug 2019

    YTMGP1: GPT 3.657% 24 AUG 2026

    This is the coupon date

  • 24Aug 2019

    YTMF12: AMP BBSW + 1.35% 24 MAY 2021

    This is the coupon date

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