With cash rates at the lowest level since the GFC and the futures market pricing in further cuts, many clients are looking for alternative investments which provide higher levels of income.
High yielding equities (Telstra, the major bank and utilities) continue to be promoted to investors, while those seeking greater capital stability may wish to look at the recent bank issued ANZ, NAB & Westpac subordinated notes. The yield to maturity for the new Westpac issue is expected to be 6.30% (based on current interest rates).
To put it in context, of Comparative Rates as at 2nd August 2012:
Rates on AAA rated Australian Government Bonds are also near historical lows:
These falling TD and market rates can be seen graphically:
For example, a client of RBS Morgans Ballina office had a $350,000 12 month TD maturing (previous rate 6.50%). With TD rates less than 5.00% we were able to construct a diversified bank & well known corporate issued portfolio that yields ~ 7.50% (or ~ $9k pa. more than a TD).
It is worth remembering that although these Listed Fixed Interest investments have more risk than term deposits and AAA rated Government Bonds, they do have a lower associated risk than ordinary shares as they rank ahead in the event of a company being wound up. They are also listed on the ASX so have great liquidity and transparency.
If you would like to discuss whether Listed Fixed Interest Investments may benefit your portfolio, please call the Ballina office on 6686 4144.