Australian superannuation investors have largely shunned corporate bonds. Post the GFC this was logical for many. Why invest in Australian corporate bonds when you could get the same yield for less risk and less hassle by sticking with Australian bank deposits? This rationale is changing, however. Low-risk short-dated corporate bond yields are now moving higher than those on deposits. Spectrum sees this as a return to “normal”. If sustained, as we expect it will be, corporate bonds may be part of the solution for those frustrated with current deposit rates. To access the full report please go to (VIEW LINK)
Comments
Patrick Poke
Is the graph on page 2 correct? It shows no allocation to mutual funds at all.
Patrick Poke
Great read. Do you think that there are any unforeseen (by regulators) risks created by the high percentage of domestic deposits compared to other funding sources? A bank run seems unlikely, but intuitively it feels like this should create additional risks.
Damien Wood
Thanks Patrick. On the question on bank deposits, I believe that the higher the level of retail deposits the better it is for banks from a creditworthiness perspective. Historically and across the globe retail bank deposits tend to be the most "sticky" source of funding during times of financial stress. The key reason for this is there is either explicit or implicit support from governments to support retail depositors. In Australia currently there is a guarantee for deposits up to $250k. Conversely foreign wholesale investors tend to be the least stable source of funding. So the less reliant a bank or banking system is on them the better it tends to be from a credit standpoint. While I agree that concentration of funding sources, at face, is an issue I believe that retail Australian deposits are likely to be the most stable source of funding in the event of a banking crisis.
Damien Wood
Patrick. Good question. I believe the graph is correct from the data I have. The issue is a consistency of presentation of data from the various national authorities. Some will "look through" the what the mutual funds are investing in and disclose this in various asset classes. Others will simply put "mutual funds". The non-disclosed or unclear will go into "other".
Patrick Poke
Thanks for the responses Damien.