Fixed interest markets rebounded over the June quarter as market conditions stabilised following the weakness experienced in March. The Reserve Bank of Australia (RBA) increased the cash rate by 0.25 percentage points in May, marking its third consecutive rate increase, before signs of slowing economic activity later in the quarter reduced expectations for further policy tightening. The RBA left rates unchanged in June while maintaining a cautious stance. The US Federal Reserve left interest rates unchanged throughout the quarter, while signaling that inflation remained above target and price stability remained its primary focus. Geopolitical tensions also eased following the signing of a memorandum of understanding between the US and Iran late in the quarter, helping to reduce concerns around energy prices and inflation. While the agreement provided a more supportive backdrop for financial markets, the situation remains fragile.
Australian fixed interest outperformed over the quarter as government bond yields declined from elevated levels, supporting bond prices. The 10-year Australian Government Bond yield fell from 4.97% to 4.72%, lifting the Bloomberg AusBond Composite 0+ Yr Index by +2.6%. Global bond markets also delivered positive returns, although gains were more modest as US Treasury yields edged higher over the period. The 10-year US Treasury yield increased from 4.32% to 4.47%, with the Bloomberg Global Aggregate Bond Index (hedged) returning +1.5% over the three months.
Credit markets remained resilient over the quarter, supported by steady corporate fundamentals and improving investor sentiment. Corporate bond spreads remained broadly stable, allowing investors to benefit from attractive income levels across credit markets. The Bloomberg Global Aggregate Credit Index (hedged) rose +1.1%, while the Bloomberg Global High Yield Index (hedged) outperformed with a gain of +3.8% as investor appetite for higher-yielding assets strengthened. In Australia, the Bloomberg AusBond Credit FRN 0+ Yr Index also returned +1.1%, benefiting from relatively high short-term interest rates while corporate bond spreads remained broadly unchanged.
Fixed interest delivered broadly positive returns over the quarter, with credit spread compression and supportive duration dynamics benefiting most strategies. Janus Henderson Australian Fixed Interest (+2.8%) produced a strong return, driven by favorable sector allocation to credit and semi-government securities alongside a positive duration contribution. Western Asset Australian Bond (+2.8%) similarly performed well, with a modest duration overweight and positioning across corporate credit and semi-government holdings adding value. Yarra Enhanced Income (+2.3%) benefited from duration, spread compression, and carry, with subordinated debt a standout contributor. PIMCO Global Bond Wholesale (+2.3%) gained from overweight securitised asset exposure and favorable Eurozone duration positioning. Bentham Global Income (+2.2%) captured improving risk sentiment across high-yield bonds and syndicated loans. Daintree Core Income Trust (+2.0%) delivered steady returns through coupon income and narrowing credit spreads. Western Asset Enhanced Income (+1.8%) generated solid income via spread compression across bank and structured credit holdings. Realm Short Term Income (+1.5%) rounded out returns through securitised credit income and global holdings.
Pendal Short Term Income Securities was trimmed and PIMCO Global Bond increased, taking advantage of more attractive global bond yields now that markets expect fewer US rate cuts.