While ASX-listed hybrids are being phased out, there has been a growing number of corporate and international bank hybrids being issued in the over-the-counter market. Last week, Mitsubishi UFJ Financial Group (MUFG) became the first Japanese bank to issue an additional Tier 1 hybrid, following successful raises by Barclays, UBS and BNP Paribas. According to KangaNews, demand for the perpetual, non-call 5.25-year issue was strong at $2.13 billion. The transaction was capped at $500m with a 7.375% coupon, down from 7.625% at launch.
There’s been plenty of commentary that with high yields, bonds are now back in fashion. State Street’s Institutional Investor Indicators September survey found risk appetite had finally slowed and that investors were reducing equity allocations and investing in bonds.
Locally, Schroders also thinks the risk and rewards stack up. Kellie Wood argues the RBA is done hiking.
Benoit Anne from MFS Investment Management summed up sentiment in his commentary:
We have been expecting you Mr. Bond.
Fixed income is back, its license to yield having been recently renewed.
Take US IG for instance, the current yield sits at a 98% percentile rank, meaning that US IG yield has been higher than the current level only 2% of the time during the past ten years.[1] It is funny how the market narrative changes. Six months ago, clients basically were saying: why would I bother with fixed income when I can buy equities?
Now even equity clients are enquiring about fixed income yields. We are of the view that fixed income valuation is back to being compelling, especially on a risk-adjusted basis.
While there are no worrying signs of fragility in the equity market – at least for now – there are a number of issues to keep in mind. First, we are always at the mercy that the AI trade may crack at some point. In addition, some equity investors, mainly on the retail side, seem to think of the equity market as their casino royale. With that in mind, we believe there is a strong case for using more fixed income in multi-asset portfolios as your risk management asset class. To be clear, it is not smooth sailing. At a macro-fundamental level, many sovereigns face some fiscal credibility issues, while rate volatility has been made worse by higher monetary policy uncertainty in some places, including the US. We tend to favor exposure to credit over sovereigns for that reason. But more importantly, an investor that takes the long view should have no difficulty seeing the appeal of current yields.
AI continues to take the headlines. I listened to a very interesting podcast from Mawer this week featuring two credit analysts, Sandro Morassutti and Marty Lee. We publish the best bits in this summary, which includes specific, large transactions, spreads, risks, and where they like to participate.
T. Rowe Price also had a Q & A on the same topic, hosted by Arif Husain who spoke to Steve Boothe and Mark Stodden.
In regards to AI and the oil shock, Franklin Templeton’s Michael Hasenstab says some countries are absorbing the pressure better than others.
If you want to understand a bit more about France and its sovereign bond market, GDP, society and the up-and-coming elections, then read this article by Michael Browne from Franklin Templeton.
In Australian corporate bond news:
- Boral raised $300m in a seven-year, fixed-rate, senior unsecured transaction with a coupon of 6.763%.
- Sumitomo Mitsui Banking Corporation, Sydney Branch raised $900m in a senior unsecured, five-year floating-rate note priced at 76 basis points over 3-month BBSW.
Hope you’re having a great week!
[1] Sources: Bloomberg. US IG = Bloomberg US IG Corp index. Data as of 9 Oct. 2026.
