As we enter the 3^rd week of August, the Northern Hemisphere is on holiday and it is no surprise that the markets are confounding investor expectations, as they are meant to do in August.

In the current low interest rate environment, it is all about yield!

Yield is the income return on an investment, such as interest, a bond coupon, or a dividend from and equity investment.

Negative yield in debt means that the holder of a bond loses money on their investment. With the amount of debt in negative yield now at a staggering $13tn, it is no wonder that the main driving force for equities will be the global hunt for yield. Which in turn is seeing increased investment into the local Aussie market.

Thanks to years of continued investor activism, top Australian companies pay higher dividends and help produce one of the highest yielding markets in the world. Compared to the S&P 500, which yields about 2.3%, the yield from ASX 200 companies is attractive, resulting in foreign inflows and leading Australian companies being included in global yield ETFs listed in the US.

…and it’s not just equity yield that is attractive in Australia, with AAA-rated government bonds producing significant yield when compared to negative yields you would receive from both countries and corporates with lower ratings.

Foreign investment in the Australian market are also having an effect on the Aussie dollar, which is on the rise despite the RBA cutting rates to record lows in August. This rise in the dollar, coupled with mortgage lenders not passing on the full rate cut to borrowers, has seen the RBAs recent decision completely wasted. If it is a weakening in the dollar that the RBA are interested in, then they may think twice about cutting again. 

Investors will be keeping a keen eye on the Australian employment report this week for an indication to the strength of the economy!

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