Salient to Investors:

Adam Bowe at Pimco said:

  • Australian bonds are attractive after their worst run of losses since 1994 because the central bank will need to lower interest rates as mining investment drops.
  • Pimco prefers to hold Aussie government bonds and high-quality spread assets like swap in the belief that interest rates will fall. The domestic outlook and the rise in global yields provide attractive valuations for Australian government bonds.
  • Pimco said is fairly cautious on corporate debt given concerns about the economy and is favoring high-quality issuers.
  • We are not at the end of the RBA’s easing cycle as the level of investment in mining will drop resulting in a significantly reduced growth in the sector that won’t be filled by residential construction and commodity exports.
  • The Australian dollar is overpriced on fundamentals and lower interest rates and/or a lower currency is required to help transition the country away from mining-assisted growth.

The median economist predicts growth of 2.5 percent in 2013 and 2.8 percent in 2014. The median forecast calls for the Australian dollar, the world’s 5th most-traded currency, to fall to 90 cents by year-end 2013.

Credit Suisse indexes show that the RBA is the only major central bank expected to substantially ease policy over the next 12 months.

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