Why slow growth, sticky inflation and good yields are a boon for bonds

This interview was filmed on 18 November 2025.

Record equities prices, bubble worries and an ever-shifting global outlook are dominating the water-cooler conversations for investors. But there's an intriguing story playing out in the Australian economy that quietly benefits fixed income investors, according to Anthony Ip, fixed income portfolio manager at Milford.

In this interview, Ip breaks down the Australian macro outlook, the attractive opportunities he's seeing in Australian corporate bond markets at the moment, and clears up one common misconception many investors have over bonds. 

A good environment for fixed income

"It's been an interesting few months for the Australian macro outlook," said Ip. "We think that cash rates are going to stay at 3.6% for an extended period of time, and that's just simply because of the way that the unemployment and inflation outlook is evolving."

While the RBA has been focused on the employment side of its dual mandate recently, the shock rise in inflation has meant they've had to shift focus there.

"The last inflation print suggested that core inflation is running around 3%, a little bit higher than the RBA is comfortable with, but it's not running away to any major extent."

While inflation seems to have settled down from the elevated levels following Covid, it remains stubborn in certain areas and that has left the RBA in a wait-and-see mindset, says Ip. 

"Some of those components of inflation are proving quite sticky," he said. "So services inflation is quite sticky and, in particular, components of inflation such as rent and housing have proven quite sticky and they're likely to be quite sticky for the next couple of quarters. So the RBA is going to want to wait for at least until the first half of 2026 before it decides on the next course of action."

One knock-on effect is that growth is also struggling. 

"If we then look at the overall picture of growth in the economy, I think growth into 2026 will average around 1-2%. That's modest growth. That's certainly less than the long-term trend." 

"Productivity growth in Australia is fairly low at the moment, and that's something that policymakers are grappling with."

But one upside is that it has created an attractive environment for fixed income investors, according to Ip.   

"You've got low, but positive, growth. You've got inflation that is a little bit high, but it's coming back down, and you've got unemployment which is fairly stable - that's a fairly benign environment for fixed income investors."

Busting a myth around bonds

The rates dilemma facing the RBA actually gets to a characteristic of the bond market that Ip believes many investors misunderstand.  

"One common misconception about the bond market is that you can only make money when interest rates fall, and that's absolutely not the case."

He believes the yields on offer in bond markets speak for themselves, especially when coupled with the alpha an active manager can bring, but are often ignored by investors.

"Something as simple as just looking at the income and the yields on offer is often overlooked by investors," says Ip. "When you layer that fact in on top of the alpha opportunities that an active investor can generate in this market, whether that's from interest rate, duration positioning, credit duration positioning, or asset allocation or individual security selection, the alpha that can be generated from those additional sources and levers at our disposal added on top of already attractive yields and interest rates, I think is often an overlooked by investors."

An attractive opportunity set

While other asset classes grapple with elevated valuations, the Australian corporate bond market is, by comparison, offering attractive risk-adjusted returns, according to Ip.