The Rules of Investing

Charlie Jamieson: Bond market pricing in "extraordinary" rate hikes

The Rules of Investing

Livewire Markets

The RBA lifted the cash rate yesterday by 25 basis points, to 0.35%. And just like that, its war on inflation - to be waged against aggregate demand - is underway. 

The threat of inflation has been written on the wall for a while, though, prompting some to wonder if the central bank has dropped the ball. Today's guest, Charlie Jamieson, CIO at Jamieson Coote Bonds, doesn't mince his words and questions whether the RBA ever had the ball in the first place. 

Lest we forget its assertions last year of no rate increases for 3 years.  

"It was absurd to think we'd be in 0.10% settings until 2024," says Jamieson. 

The hikes will now come thick and fast, if bond market prognostications are anything to go by. 

"The bond market is pricing the RBA to hike rates higher than the US Federal Reserve... that's extraordinary."

In today's episode of The Rules of Investing, Charlie sits down with Livewire's David Thornton to discuss what this hiking cycle will look like and how fixed income will perform in light of it. He also pulls back the curtain on bond portfolio construction - namely, which bonds to include and when. 

Note: this episode was recorded on April 28. 


Timestamps

  • 1:26 - Did you expect inflation to be that high?
  • 5:05 - Has the RBA dropped the ball?
  • 12:35 - How culpable are central banks for inflation?
  • 20:40 - The yield curve inversion - trajectory for rates?
  • 28:30 - How possible is it for credit markets to freeze up?
  • 31:50 - Bond return expectations
  • 37:15 - How do you balance the duration as rates and expectation change?
  • 41:45 - Active vs passive bond funds?
  • 45:00 - Absolute return vs index bond funds
  • 48:00 - How bad will it get?
  • 50:55 - 3 questions

Reading recommendations

Reminiscences of a Stock Operator. Available on Amazon and Booktopia.

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The Rules of Investing is one of Australia's top investing podcasts. We interview the leading investment minds from Australia and overseas to better understand their processes and philosophy. After launching in October 2017, there have been over...

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