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Bonds and Cash Investors were also buoyed by better than
expected economic data versus the dire
At a headline level, bond returns were expectations set in March. That’s not to
moderate in the June quarter. Australian say that the economic data was any better
bonds were up slightly (+0.53%) whilst in an absolute sense, nor is the economic
global bonds (+2.3%) benefited from outlook any clearer, but investor spirits
currency hedging in light of the rising were lifted by positive economic surprises
Aussie dollar. Corporate bonds and by the lack of a 2nd virus wave and
outperformed government bonds as continued re-opening. We also saw
spreads continue to tighten on solvency positive news out of Europe pertaining to a
risks abating, assisted by central bank greater fiscal union, with key players
buying. Cash yields remained anchored agreeing to come together to support the
low with the RBA leaving the official rate European recovery effort in a coordinated
(+0.25%) untouched throughout the manner.
quarter.
Also worth noting that the US political
The June quarter saw markets and environment somehow got more toxic
economics continue their path of through the quarter with protests, riots,
divergence, with equity markets providing and the general lack of law and order
one of the strongest quarters ever seen off hurting the economic recovery whilst
the March lows, whilst the economic increasingly the possibility of a 2nd virus
outlook showed little improvement. wave. Polls swung firmly in favour of the
Equity markets were buoyed by Democrats and presidential hopeful Joe
extraordinary government and central Biden during the quarter.
bank stimulus whilst virus contraction Key on most minds was the potential
rates began to peak in most countries government reaction to future virus waves
around the world, providing some and the “fiscal cliff” whereby most of the
optimism regarding re-opening of government stimulus measures put in
economies and the beginning of an place in March are set to expire in the next
economic recovery. Optimism regarding quarter. Absent an extension of these
the early development and availability of measures, it’s fair to say that the
vaccine also assisted in boosting investor economic and market outcomes will be
confidence and sentiment. significantly adversely affected from here.
Government’s locally and globally Given the positive momentum in markets
continued to provide significant fiscal in the quarter, it’s fair to say that investors
stimulus to fill the void created by believe significant re-lockdown measures
lockdown measures. The most significant are unlikely and that government and
of those measures related to supporting central banks support continues unabated
businesses to continue paying workers from here.
and supporting those workers that have
seen their hours reduced or lost their jobs.
These stimulus measures are significant Looking forward
enough to allow most workers, and even The outlook remains mixed at best as we
those that have lost their jobs, to continue end the quarter with the prospect of rising
consuming at high levels. Central banks virus cases and the re-emergence of
continued to maintain very low cash rates, increased lockdown measures all whilst
continued to provide significant support to riskier assets like equities and corporate
banks and the non-bank mortgage market, debt continue to move higher.
all whilst they intervened in bond markets
to lower borrowing costs for governments
and corporates. Chris Lioutas
PSK Financial Services -
Chief Investment Officer
