RBA Rate Cycle Shift: FIIG Urges Fixed-Rate Bond Allocation

Investors are being advised to shift some of their fixed income portfolios from floating rate notes (FRNs) to fixed-rate bonds as the Reserve Bank of Australia (RBA) approaches the end of its tightening cycle, according to FIIG Securities.

Phillip Brown, head of research at FIIG, said that while the firm still prefers inflation-linked bonds, the investment case is increasingly tilting towards fixed-rate bonds as markets look beyond one final rate rise this year to a likely easing cycle beginning in 2027.

The view reflects what FIIG sees as a rare opportunity in the bond market, with longer-dated government bond yields remaining materially above the cash rate despite expectations that the RBA has only one further rate increase ahead of it.

'Towards the end of the RBA rise cycle, it is common for government bond yields to be underneath the cash rate,' Brown said. 'This is emphatically not what is happening now.'

Fundamental to FIIG's view is that investors should begin gradually adding duration while being selective about credit exposure.