SYDNEY: After years of venturing offshore, some of Australia’s biggest pension funds are scooping up more government bonds at home – assets they now deem among the safest as trade-war risks rattle markets.
Australian Retirement Trust, the nation’s second-largest fund by assets, has ratcheted up its Aussie bond allocation in some strategies to nearly the highest level since the global financial crisis almost two decades ago.
Rival Colonial First State Investments Ltd likes Australian fixed income including government bonds for their haven qualities.
The idea of what constitutes a safe harbour from volatility has changed as US president Donald Trump imposes tariffs and upends the geopolitical status quo.
Popular for prospects of interest-rate cuts and as protection against a global economic downturn, Aussie bonds have drawn the attention of JPMorgan Asset Management to Pacific Investment Management Co amid deepening market uncertainty.
“One of the best places I’d say to actively tilt toward an overweight position would actually be here at home in Australia,” said Jimmy Louca, senior portfolio manager at Australian Retirement Trust, which oversees more than A$330bil.
Australia is “not in the direct firing line of Trump’s tariffs,” he said, so “we get the safe haven flows.”
Australia’s A$4.1 trillion pension industry has looked offshore for years – about half of the nation’s retirement savings is now parked overseas. But there are multiple factors boosting the appeal of bringing cash home.
Some funds have acknowledged the challenge with volatility and currency fluctuations when they hold foreign assets, given their need to pay out pensions in Aussie dollars.
The Reserve Bank of Australia is expected to cut interest rates as soon as tomorrow as inflation comes down. Bond yields in Australia are now more attractive, too.
Benchmark 10-year Aussie notes yielded around 4.43% as of yesterday, while those on equivalent Treasuries were around 4.48% last Friday.
Still, Aussie bonds aren’t the only game in town. AustralianSuper, the nation’s largest pension by assets, sees haven value in US Treasuries.
“When there have been moments of equity market jitters or rising risk concerns, US Treasuries have actually come back as a bit of a diversification tool,” said Katie Dean, head of fixed-income, currency and cash. “For the time being, we are very comfortable owning Treasuries.”
Bonds – both domestic and international – are now a buy at Australia’s A$238bil sovereign wealth fund, where officials had previously questioned whether fixed income would continue to play as large a role in the traditional 60-40 portfolio.
“We think you could expect bonds to behave in a more traditional fashion, at least for the short term foreseeable period,” Future Fund chief executive officer Raphael Arndt said in an interview.
But the trend of Aussie funds bringing some assets back home is evident. Colonial First State, which oversees A$169bil, has increased its domestic fixed-income exposure in the past two years.
“We view it as a bit more of a safe harbour in the interest-rate-volatility environment globally,” Robert Graham-Smith, head of fixed income and alternatives, said of Australian fixed income. — Bloomberg
