Australian Fixed Interest Q3 2025 Update: Exploring the macroeconomic landscape

Hi, and thanks for joining us. My name is Jay Sivapalan, Head of Fixed Interest at Janus Henderson in Australia. There’s a lot to talk about in terms of markets and certainly an incredible amount of volatility, whether we look at the economies and/or markets itself. And for investors, there’s some important implications. If we just start with the macro economic picture, we’ve got quite a differentiated outcome starting to occur between Australia, which is gradually starting to grow, with the consumer coming back after the RBA rate cuts.

And then of course in the US going the other way, where the final impact of tariffs is starting to come through, both in terms of consumer confidence, employment and economic growth. And then further afield in Europe, they’ve got their own challenges and of course China’s having to transition their economies, quite significantly, which has some implications for us here in Australia.

From a market perspective, we have seen the markets, pricing a small amount of further easing by the RBA and the markets really considering whether inflation is a threat or not. For our part, we don’t believe yet that inflation is a threat and that we will have some sticky items in inflation, mostly around energy and a few of those sources, but not necessarily very structural.

And then of course, we’ve got spread markets. Let me start with state government bonds. As many of you know, we’re a full spectrum manager. We look at government, inflation linked, state government, corporate credit and securitised markets, in fixed income. So, state government, no doubt fiscally are deteriorating. But there is quite good spreads available for investors, especially when you compare it to corporate credit today.

State government bonds have performed really well in the context of the last few months, and we continue to think of them as a great opportunity set for the year ahead. When we move on to the corporate debt sector, investment grade markets, whether it’s here or in the US or Europe, are in reasonably robust situations when you think about their fundamentals.

But there has been a technical drive, where spreads have really narrowed and we’re starting to just moderate our enthusiasm in relation to avoid positions in corporate credit. Looking further afield, especially the lower quality end, you would have heard a lot of discussion about payment in kind, some defaults, including soft defaults coming through in the US, some pockets of private markets and some pockets of the loan markets.

We’re much more cautious in those areas. We don’t see the reward for the risk. And so therefore in our various portfolios, we are largely, quite underinvested in those areas. And then finally, credit protection is really cheap today. So overall we’ve got a constructive view for the year ahead. We’re playing it a little bit safer in the higher credit quality end.

We’re utilising instruments like state government bonds. And we are seeing some opportunities in yield curve positioning, especially the long end when you have the sell offs in markets. Thank you for listening.