Fixed income investors spooked by falling house prices

Australian fixed income investors believe falling house prices pose the biggest risk to credit markets with 95 per cent expecting prices to fall further.

Responses to the 2Q19 Fitch Ratings KangaNews Australian Fixed Income Investors survey in mid-March found the property market was concerning the majority of fixed income investors. Some 70 per cent of respondents said a downturn in the domestic housing market was the top risk for local credit markets.

House prices have declined for several quarters in Australia due to an economic slowdown and the withdrawal of foreign buyers and are expected to fall further this year with particular sharp declines in Sydney and Melbourne.

Looking to labour, all of the respondents said they expected unemployment would stay at or below six per cent in 2019 and they did not foresee any significant deterioration in the job market until the end of 2020.

The softening of the jobs market led Reserve Bank of Australia governor Philip Lowe to hint this week at a possible rate cut from 1.5 per cent in June and survey respondents agreed, saying there was zero chance rates would rise in the next 12 months.

Within businesses, firms said capital expenditure was the least-likely use of cash over the next 12 months while shareholder-orientated activities were the most likely.

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