Fixed interest markets see changes

The Reserve Bank is set to announce its latest Official Cash Rate (OCR) decision next week, and according to Matt Logan, Portfolio Manager – Credit at Fisher Funds, New Zealand is at a turning point. The speed and timing of this turn are uncertain, he says.

Logan discussed the latest happenings in the fixed interest market with Philip Macalister on Good Returns TV, explaining that while there were signs of economic growth at the start of the year, the expectation of a normal recovery is off the cards now due to the war in the Middle East.

Logan believes the Reserve Bank of New Zealand is in a difficult position and will likely raise interest rates. His view is that there will be two or three 25 basis point hikes, which he thinks is probably enough given the current economic situation.

There are no fears of an overheating economy, Logan says. He thinks the Reserve Bank has to raise rates or at least indicate they are on the cards.

Private credit is a growing part of the investment universe, and Fisher Funds has openly outlined its intentions in this space. Logan says while Fisher’s investment in this area is small to date, it is still in the hundreds of millions of dollars and will grow.

New Zealand has been slow to adopt private market investing, but Logan thinks this can be beneficial, allowing the market to learn from offshore experiences. He notes that US private credit funds have seen closures and redemption restrictions, but he doesn’t see this as a big issue in New Zealand.

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Being late to the party is probably a good thing, Logan says. They probably won’t take as many risks and can learn from others.

Logan also discusses the potential benefits of going through a cycle, allowing investors and investees to become more aligned. This can lead to more informed decision-making and better outcomes for all parties involved.

In the interview, Logan discusses whether the 60:40 portfolio is still viable, as well as how AI is shaping equity and bond markets. He provides insight into the potential implications of these developments for investors and the financial market.

As the Reserve Bank prepares to announce its latest OCR decision, investors and market watchers will be closely monitoring the situation. With the war in the Middle East and other global factors at play, the fixed interest market will remain volatile in the near term.

One potential outcome is that investors will increasingly turn to monetary stimulus alternatives, such as private credit, in search of yield and returns.

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