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What about Australian bond yields at a record low?

The plunge in Australian bond yields to a record low of 1.78% (below 2016âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s low of 1.81%) reflects a combination of weak economic data locally causing the fixed interest market to price in RBA rate cuts and falling bond yields globally.

 

We remain of the view that Australian bonds will outperform global bonds (reflecting RBA easing at a time of the Fed holding) and that the Australian share market will continue to underperform global shares (as earnings growth locally lags that globally in response to weaker economic conditions in Australia).

 

We continue to see the RBA cutting rates twice this year....

and a bunch of pretty, but widely circulated graphs, from Shane Oliver

https://www.sharecafe.com.au/2019/03/27/glo...d-yield-curves/

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At some point in time, all these experts will finally wake up to the fact that interest rates are not the powerfull lever that some think it is. (Assuming it ever was a powerful lever).

Look at the experience in Japan , USA and Europe with low or below zero interest rates.

How will lowering interest rates (twice) improve things in OZ??

The two things keeping us going are Government spending (at all three levels), and immigration.

Interest rates don't seem to affect government spending much, and immigrants are not borrowing money when they first arrive.

 

Mick

 

 

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  • 2 months later...

Australia's central bank has cut official interest rates by 0.25 percentage points to 1.25 per cent, a new record low and the first change in rates for 34 months.

 

"It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target," the RBA board statement said.

 

"The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time."

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https://www.sharecafe.com.au/2019/06/05/rba...new-record-low/

 

 

rate cuts have helped the economy rebalance after the end of the mining investment boom by supporting non-mining spending. If the cash rate was still 4.75% and mortgage rates 7.5% the economy would have long ago gone into recession.

 

the level of household debt is more than double that of household deposits, so the household sector is a net beneficiary of lower interest rates. The responsiveness to changes in spending power for a family with a mortgage is far greater than for retirees. And, even if many with a mortgage just let their debt get paid off faster in response to falling rates this provides an offset to the negative wealth effect of the fall in house prices

 

=======================

 

why the heck Australian have such high debt level at the first place???? BECAUSE of we have LOW interest rate for too freaking long!!!!!!!

only thing can blame for low interest is the -------globalization ------that create over supply with low price. imho

 

 

 

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As a self funded retireee, I am struggling to workout the right strategies for the short to medium term.

NAB offer a "high Interest account" in their NABTRADE structure.

It is now paying the fantastic sum of 1.75% interest.

And with every man and his dog predicting at least one more cut, it aint gunna get any better in the short term..

I refuse to let the bastards at NAB use my money to make a lot more for themselves.

the big question is, to what exactly do we put our millions into??

Already got enough illiquid property.

It really only leaves the share market left.

I wonder how many other folk in a similar situation will take the same route??

Will we have a share boom as investors have no other paths to follow??

 

Mick

 

 

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Without needing to stock pick, I'd be leaning towards things like AFI, VAS, VHY, A200, VGS, VDHG, VDGR, VDBA etc. Betashare's A200 has the lowest management fee out there under cutting Vanguard's VAS.

Things like Vanguard's diversified ETFs interest me with considerable geographic and sectoral diversity.(VDHG, VDGR, VDBA, VDCO). Still quite new but their unlisted equivalents have a decent record.

 

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...the big question is, to what exactly do we put our millions into??

Already got enough illiquid property.

It really only leaves the share market left.

I wonder how many other folk in a similar situation will take the same route?

and jacsar said
my approach..

Here's mine (in for a penny, in for a farthing): Without knowing too much, and making a few assumptions....... I've notice everyone pays the same at the supermarket, the petrol pump, the coffee shop. In other words we all need a fixed amount to get by on, a basic wage, a pension amount, and then the rest is discretionary. Investments, a roof over my head, play money, Maslovian aspirations. The issue you raise, about a return on cash, is only going to get worse. I mean, for a Million Bucks, this will, if invested with absolute surety, generate under $20K pa, which is less than Centrelink. Better returns are elsewhere, where the risk lies.

Based on the mantra of not wanting to find myself in a position of not wanting to sell good assets at bad times, I have looked to generate as much as possible as safely as possible, by putting 25% in Bonds and the rest in the market. Not just any bonds, but Indexed Annuity Bonds (JEM, Civic Nexus, Novacare, PJS, ANU), etc. As a rule, these are Investment Grade, long term and throwing off about 8-9%pa. How, you may ask? An IAB usually pays quarterly, a mix of coupon (interest) and capital. The coupon is generally expressed as CPI + margin, and I'm getting 3-4% there; the capital depends on the duration. Most IABs mature 2030-2035 so over the life of each, capital is returned over the years such that at maturity, there is $0 residual. IE it has paid down, and this has the added benefit of reducing exposure (derisking) over the life of the IAB.

 

Then, apart from the family home, it's all shares. No managed funds but, like balance says, diversification where fees are low, spread approx equally Domestic and International. No more than 10% in any one holding. And a risk bucket of 10-15% exposure in the pointy end, more actively traded (in SMSF, which helps with CGT considerations).

 

And gearing doesn't work IMO. All those projections, they miss one essential element that interest paid is cash foregone and thus investment opportunity lost.

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The Reserve Bank says further interest rate cuts are likely, with minutes from the bank's last board meeting revealing a more dovish tone in monetary policy. The bank said the spare capacity in the economy meant that stronger wage growth and increased inflation were still some way off and that further rate cuts from the current low of 1.25 per cent would be needed to stimulate the economy and employment.

 

In the wake of the RBA minutes from the first rate cut in almost three years, the Australian dollar immediately lost ground, falling 0.2 per cent and with some economists suggesting the chance of a rate cut next month was still "live". "Given the amount of spare capacity in the labour market and the economy more broadly, members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead," the minutes said.

 

The board minutes also reveal the bank is less concerned with how lower interest rates could fuel more borrowing and higher risk taking. "A decline in interest rates was unlikely to encourage a material pick-up in borrowing by households that would add to medium-term risks in the economy."

- weaker until implosion time
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