subscribe to our newsletter

Silent risks hidden in bond markets

Silent risks hidden in bond markets
Cameron Micallef
09 March 2020 — 1 minute read

An industry expert has cautioned investors to not fall into the trap of buying inferior-quality bonds in a low-yielding environment despite the promises of higher returns.

During a recent Pitcher Partners function, advisory board chairman of Jamieson Coote Bonds Mark Burgess sounded a timely warning for Australian investors as the level of national debt continues to rise. 

Mr Burgess said silent risks in debt markets were rising given the growth in poorer-quality assets, which he referred to as “covenant lite”, implying weakness in some of the lenders’ protections.


“The ideal time to get your asset allocation right is right now,” he said. “There are unknown risks inside some assets that some investors often don’t fully understand,” Mr Burgess said.

To mitigate against downside risk, Jamieson Coote Bonds specialist bond manager and co-founder Angus Coote told investors to purchase quality AAA-rated government bonds.

This is because exposure to high-grade sovereign bonds can outperform riskier assets such as equities and high-yield credit during periods of market stress given their negative correlation, he explained.

Mr Burgess agreed that adding high-grade bonds alongside other risky assets in diversified portfolios was a crucial measure to get the balance right between risk and return.

“We have got asset classes that have simply had tailwinds behind them — in private equity, infrastructure and real estate,” he said.

“Every infrastructure manager thinks they’re a genius. I stand here and tell you they’re not.”

Silent risks hidden in bond markets
stock market graph smsf
smsfadviser logo

Are you up to date with the legislative changes from 1 July? Contribution cap increases, super guarantees, age increases, SG rate increases. The budget announcement changes. Don’t be caught off guard by your clients’ questions. Prepare for any scenario with the SMSF Foundations course. 21 CPD hours available. Learn more

Arm yourself with the critical information that you need to ensure you and your clients continue to thrive in today’s changing environment at the free-to-stream SMSF Adviser Technical Strategy Day. Live streamed directly to you in October over three days, this event is jam-packed with expert-led sessions to arm you for success by providing the latest updates on regulatory and legislative changes impacting SMSFs. Secure your free spot today, visit www.smsfstrategyday.com.au

join the discussion

Latest poll

Do you have clients that are aged 65 or 66 planning to trigger the bring forward rules?


Get the latest news and opinions delivered to your inbox each morning

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.