The Pension Titans Buy Bonds as Markets Whipsaw During a Recession

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As Australia’s economy starts to cool, the nation’s two most considerable pension funds by assets, AustralianSuper Pty and Australian Retirement Trust, have started investing heavily in bonds to hedge against a potential recession.

The nation’s two most significant pension funds by assets buy bonds from domestic and international markets to protect their investments during economic uncertainty. The Future Fund, Australia’s sovereign wealth fund, has also beefed up its holdings of government debt in anticipation of a potential recession.

“You want to buy bonds essentially when the yield curve is inverted when the market thinks policy’s tight,” said Mark Delaney.

Mark Delaney serves as chief investment officer of AustralianSuper, which helps manage the equivalent of $182 billion. According to Delaney, when the yield curve is inverted, it becomes a beautiful signal for investors looking to hedge against a potential recession. This phenomenon occurs when short-term interest rates are higher than long-term rates, indicating that economic activity may slow or contract.

Mark Delaney said, “We have substantially increased our allocation of bonds. We will just keep on buying at better levels.”

Despite the wave of investors ditching bonds as the Federal Reserve and European Central Bank signal ever-higher policy rates to tame inflation, pension titans like AustralianSuper Pty and Australian Retirement Trust have taken a positive view toward fixed-income assets. They believe that bonds can effectively hedge against economic recession and are prepared to buy these assets during economic uncertainty.

International markets have also seen a rise in bond investments by pension funds looking for safe-haven assets during volatile market conditions.

Pension funds are taking a more cautious approach to their investments, with many favouring fixed-income assets over stocks as they continue to look for ways to protect their investments during economic uncertainty.

With no end to recessionary fears on the horizon, Australia’s big pension titans will continue to buy up more bonds to secure their investors’ financial future in turbulent times.

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