Investing

Let The Right One In…To Your Portfolio

  • 31.OCT.2017
  • Ian Martin,  XTB

As all investors know, it is important to only invite the right assets across the threshold into your portfolio.

To illustrate what this means in practice for bonds, we will look at a 12-month period from 30 September 2016 to 29 September 2017.

Although the RBA remained on hold at 1.50%:

  • The yield on the 3-year government bond increased 63 bps from 1.52% to 2.15%
  • The 10-year government bond moved 93 bps higher from 1.91% to 2.84%.

Chart 1: Yield to Maturity of 3 Year and 10 Year Australian Government Bonds

Source: XTB & Bloomberg

Comparing separate parts of the Index sees surprising results

Composite Index

The Bloomberg AusBond Composite 10+ Index contains mainly government bonds with maturities 10 years and longer. This Index had a ‘frightening’ annual return of -5.62%. This result fulfils the predictions that bonds in a rising rate environment are scary.

Credit Index

But if we shift our focus to the Credit Index (corporate bonds) with maturities 0-5 years, we see a different picture. The total return for the Credit Index was 2.81% pa.

This just goes to show you need to let the right bonds into your portfolio.

 

The table below shows the Bloomberg Composite Index vs  Credit Index for various maturities.

Table 1: Total Return of Bloomberg Indices – 12 months as at 29 Sep ’17

INDEX MATURITY TOTAL RETURN
Composite Bond Index All Maturities -0.75%
Credit Index All Maturities 2.09%
Relative Performance 2.84%
Composite Bond Index 0-5 Years 1.31%
Credit Index 0-5 Years 2.81%
Relative Performance 1.50%
Composite Bond Index 10+ Years -5.62%
Credit Index 10+ Years 0.39%
Relative Performance 6.01%

Read more on the sydnicated tap of the March 2047 benchmark bond.

Events

  • 25Nov 2017

    YTMSG1: STOCKLAND 8.25% 25 NOV 2020

    This is the coupon date

  • 29Nov 2017

    YTMDOW: DOWNER GROUP 5.75% 29 NOV 2018

    This is the coupon date

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