Anna Hong: What the latest job numbers mean for bond investors | Pendal Group
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Anna Hong: What the latest job numbers mean for bond investors

The unemployment rate remains low. Pendal assistant PM ANNA HONG explains what that means for rates and bonds

TODAY’S jobs data shows the headline unemployment rate stuck around 3.5% and the participation rate falling by only 0.1%.

The good news is, we’ve got jobs.

But does it mean more rate hikes are on the cards?

Yes and no.

The unemployment rate is a slow-moving indicator, reflecting what has already happened rather than what will happen.

People tighten their belts, which results in a slowdown in economic activity way before we lose our jobs.

This can be observed through spending habits, retail sales and the inflation trend which clearly shows disinflation flowing through in the Australia CPI number.

Australia’s CPI peaked at 7.8% in December 2022 and continued to slow down to 5.6% in May.

That’s despite our unemployment rate tracking sideways at 3.5% since reaching a low of 3.4% in October 2022.

Furthermore, high net migration has already materially reduced the number job openings in Australia.

Job advertisements in NSW, VIC and ACT have weakened, especially in the segments such as hospitality, tourism and retail which are most sensitive to the inflow of foreign workers.

What does this mean for bond investors?

It’s not yet time to raise the “mission accomplished” flag, but we are closer to the end of the rate hiking cycle.

There may be one or two more rate hikes, though much of the market pricing already reflects than.

Find out about

Pendal’s Income and Fixed Interest funds

This is especially evident in Australian three-year and ten-year government bonds price moves after the release of the unemployment data – it moved in about a 0.06% range.

Is there a risk of over-hiking by the central banks? Yes.

In that scenario, something will break and we favour duration protection at around 4% yield to deliver capital gains for the portfolio.

What if we get a soft-landing?

That means that the RBA can chart a path back down towards neutral, which should give long bonds a nice capital kick.


About Anna Hong and Pendal’s Income and Fixed Interest team

Anna Hong is an assistant portfolio manager with Pendal’s Income and Fixed Interest team.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

With the goal of building the most defensive line of funds in Australia, the team oversees some $20 billion invested across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here


About Pendal Group

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

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