Australian credit market well supported

23 August 2018
| By Oksana Patron |
image
image
expand image

Australian credit markets have been well supported by the ‘robust’ economy and there is no ‘imminent threat’ to the current credit cycle, according to Legg Mason’s fixed interest manager, Western Asset.

The manager said the corporate earnings season turned out to be solid, with the slightly more optimistic outlook driven by stronger earnings, while credit quality remained sound with gearing ratios generally towards the lower end of target ranges and debt coverage ratios remaining still healthy.

However, the consumer remained a key risk to the outlook for the corporate treasuries.

Western Asset’s portfolio manager and research analyst, Damon Shinnick, said key risks were in the housing market, particularly given heightened levels of interest-only loans and investor lending.

“Bottom-up analysis remains key, so avoiding companies that have exposure to more cyclical parts of the economy will likely serve portfolios well. This focus on the fundamentals will also continue to drive Western Asset’s tactical positioning across portfolios,” he said.

He noted that historically there had been a strong correlation between US speculative grade default rates and Australian dollar corporate spreads.

“This relationship is no more evident than during the GFC - why did our spreads widen if there was neither a domestic economic recession nor a subprime housing sector?” he added.

“The answer is that global funding markets are interrelated. Australia’s credit markets are global in nature, with about 50 per cent of the value of the Australian corporate bond market issued by global companies.

“Additionally, Australian institutions derive much of their funding from offshore markets, particularly the major banks so when global liquidity seizes up, it flows through to domestic balance sheets.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

1 year 1 month ago
Kevin Gorman

Super director remuneration ...

1 year 1 month ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

1 year 1 month ago

The Better Targeted Superannuation Concessions was once again dropped from the schedule....

5 minutes 9 seconds ago

AMP is the latest super fund to expand into digital advice with the launch of a new retirement planning tool....

7 minutes 58 seconds ago

Cbus has exited its investment in Bright Energy Investments, a major player in the renewable energy sector based in Western Australia....

21 minutes 37 seconds ago

TOP PERFORMING FUNDS