Fund manager upbeat on Australian credit
The world’s largest asset manager has adopted a cautiously optimistic view of Australia’s economy, concentrating on its credit market.
Employment data fuels rate hike expectations
Katherine Palmer, BlackRock’s head of fixed income and credit product strategy, spoke at a media roundtable on July 24. She stated the domestic economy remains healthy despite slowing momentum. Her remarks followed June employment figures showing steady jobs growth and an unemployment rate of 4.4%.
Palmer called the jobs data strong, noting unemployment sits below pre-pandemic levels that exceeded 5%. The figures have raised the probability of another Reserve Bank of Australia interest rate increase before year’s end, according to the firm’s assessment.
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Inflation continues to concern the central bank. Palmer expects the RBA to maintain its tightening cycle. This outlook differs from broader economic warnings, including an OECD finding that Australians faced one of the developed world’s steepest living standard declines since the pandemic. Inflation has eroded real wages. Deloitte Access Economics also warned of Australia’s weakest economic growth period since the early 1990s recession, while the International Monetary Fund recently lowered its growth forecast for the country.
Palmer recognized these pressures but argued wage growth isn’t as weak as some reports indicate. She said while some analyses suggest Australians have lost ground, the overall employment picture remains solid.
Credit market stands out amid high yields
BlackRock has named durable income a key investment theme for the second half of the year. Palmer highlighted Australia’s bond market as especially attractive, pointing to high yields and strong credit ratings. The 10-year Australian government bond, rated AAA, currently yields close to 5%. She called this a better starting point for fixed income than the past five years offered.
Investors seeking less interest-rate sensitivity can find shorter-duration bonds, such as the 3-year government bond, yielding around 4.6% with additional carry potential. Corporate credit also shows promise.
Palmer said the market has grown deeper and more liquid over time. The RBA’s next steps remain uncertain. However, the combination of high yields and a relatively stable economic outlook has made Australia’s credit market a standout among developed economies. For now, this keeps some of the world’s largest investors engaged.
