Templeton tailors Aussie debut fund for jump in yield

FRANKLIN Templeton Investments is designing its first bond fund focused on Australia to withstand a near one percentage point surge in the local 10-year yield.

The fund, set to start within the next two months, is targeting a return of 300 basis points more than cash rather than tracking bond benchmark indexes that may suffer losses as yields rise. With more than US$900 billion in assets under management globally, Franklin Templeton is building a four- person fixed-income team in Australia, starting with Melbourne-based Chris Siniakov and Andrew Canobi.

"There's a lot of exposure across the client universe to investment approaches in the market that we feel could incur considerable losses," Mr Canobi said on Sept 5 by phone. With a cash benchmark, the fund has no inherent interest-rate risk and has the flexibility to benefit from climbing yields, he said. There are "good opportunities to earn income, to earn bond-like returns, even in a rising yield environment." Mr Canobi said Australia's 10-year government bond yield may climb at least 95 basis points to 4.5 per cent over the coming 12 months as US monetary authorities raise interest rates for the first time since 2006. Longer-term Aussie bonds are moving almost in lockstep with Treasuries as Reserve Bank of Australia Governor Glenn Stevens indicates borrowing costs are on hold as he looks for a pickup in confidence to revive growth.