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Indexed annuity bonds (IAB) - how they work and their many benefits

While IAB bonds are sometimes perceived as being complex for their unique features, they are not so complicated once you know how to think about them. IABs pay quarterly payment that has it’s purchasing power preserved through indexation to inflation. Because the cash flow is indexed to inflation, the yield includes an inflation assumption. The par value needs to be calculated, but works in a similar way to a mortgage, with each quarterly payment having both an interest and a principal component.

Education (basics)

Dynamics in the labour market are very material to the RBA

The RBA keeps an eye on the Australian labour market as it is one of the most important indicators of the growth of the economy. Labour data is a direct target of monetary policy via the RBA’s employment mandate, but also an indirect one since it so clearly affects inflation dynamics. Over the last six months or so, the unemployment rate has trended sideways and still remains at extremely strong levels. While the unemployment rate remains low and inflation elevated, there is little reason for the RBA to cut interest rates.

Opinion

Portfolio Construction: The interaction of yield, slope, and return

The Lucky 7 piece steps through four different possible outcomes for the RBA. The scenarios range from an unexpectedly high interest rate outcome to a rate cut cycle that would only occur if the economy materially weakened. In between are two much more likely scenarios that involve much less movement in the RBA rate.

The Evolution of a Bond’s Clean Price Over Time

Understanding the likely evolution of a bond’s price is critical to successful fixed income investing. All bonds have some exposure to interest rates or other risks and the price of a bond will change over the course of the investment. However, the structural features of a bond materially affect how and by how much the bond will react to changes in market rates. This article explains the most common types of bonds and explores the likely evolution of their prices over time.

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