• Inflation rate now at lowest point in three years
  • GIM Trading sees 2.7% CPI as perfect time to buy on bonds
  • Bonds offer cash flow and safer alternative to high-risk equities

 

Special Report: Analysts at GIM Trading have heralded a low-interest market as the perfect time to shift to the safe and high-return rewards of Australian bonds.

With inflation now at its lowest rate in three years, analysts at Australian-based wealth management group GIM Trading say there now lies a unique opportunity for the nation’s investors.

The analysts noted as inflation slows, the real value of fixed-rate investments such as bonds rise, offering a steady interest rate which remains fixed in place.

It presents a stable asset at better rates than the savings account for the more risk-averse investors, and at the right time, a better rate of return for those favouring the higher margins of chance.

“With inflation dropping to 2.7% in August, now is the ideal time for Australian investors to consider bonds,” GIM Trading CEO Stephen Cubis said.

“Not only do bonds provide a safer alternative to high-risk investments, but they also offer a strong return that is unaffected by the fluctuations of inflation and interest rates.”

 

Bonds over troubled waters

Bonds are traditionally used to balance portfolio risk and provide a consistent income stream in times of uncertainty against more up-and-down components like equities.

A conservative allotment it may be, but as with all investments there are certainly better times to act than others.

A bond offering a fixed interest of 5% as inflation is low or declining becomes more valuable with real and maintained purchasing power. When inflation is high real returns diminish as it takes away fixed income.

The Australian rate of inflation remains higher than the current respective US and United Kingdom rates of 2.5% and 2.2%. The global powers are aiming to get their CPI readings back to their target of 2%.

 

Forecasting the Fed

GIM Trading had long fixed its gaze on the US Federal Reserve and its Australian counterpart, with the rate movement slated by Bank of America Global Research as the most uncertain since at least 2015.

Its analysts saw a cut coming, well aware how significantly any adjustments to interest rates can impact investment strategies.

The Fed indeed ended up making a sizeable 0.5% chop to interest rates, and while the Reserve Bank of Australia has yet to follow suit,  it did notably lower its Australian GDP target for Australia in a move expected to partially nullify an inflation uptick.

While unpredictability remains , GIM Trading is confident its range of corporate and government bonds will outperform and maintain the security of savings whichever way the market goes.

But it believes the time is now to get a little more out of the safe side of the portfolio.

 

This article was developed in collaboration with GIM Trading, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

Read MoreAustralian DollarBankingEconomyInterest RatesMarkets

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