Companies eye bond yields as competition for capital increases | The Business
Australia’s 10-year bond yield hit a 15-year high this week, above 5.1 per cent. Shaw and Partners Asset Management investment director Julia Lee joined The Business and told Alicia Barry why this is being so closely watched. “These yields reflect lending costs and borrowing costs. Not only do mortgage holders need to borrow money, but usually companies need to borrow money in order to grow.” She said.
The move in the local 10-year bond yield to its highest level since 2011, comes along side steep moves higher in global bond yields in recent weeks. Investors have been nervous about an outbreak of inflation, as oil prices rise to a six-week high, as US government debt levels increase and the capital hungry AI expansion continues.
Julia Lee says “the competition for capital is definitely on, and that’s because of how rapidly artificial intelligence and related areas are expanding … you only have to look at data centres to see there’s a lot of activity. So, there’s a lot of funding needed out there globally and that’s also competing against the US government that needs to refinance its huge burden of debt.”
She says the bond market is important to watch for equity investors “because it is the funding engine for a lot of global growth”.
Julia Lee also discusses the flow through effects of rising crude prices in various sectors and why Australian companies that produce offshore earnings did better than those only exposed to the domestic market during the August earnings season.
She also says investors should expect another interest rate rise on Melbourne Cup Day after stronger than expected GDP data in the June quarter.
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