Offering Equity-Like Returns, the Income Opportunity Has Rarely Been Better

Why It Matters

The fund demonstrates how Australian fixed‑income can now generate equity‑like returns, offering investors a high‑yield, lower‑volatility alternative in a shifting tax and rate environment.

Key Takeaways

• Fixed‑income yields remain above 6% despite recent rate hikes.
• CGT reform narrows after‑tax return gap between bonds and equities.
• Roy favors locking in fixed‑rate issuance over crowded floating‑rate trade.
• Credit spreads widened, offering attractive risk‑adjusted yields in Australia.
• New cash flows targeted at high‑yielding AT1 and triple‑B securities.

Summary

The Livewire income series episode spotlights Yarra Capital’s Enhanced Income Fund, with manager Roy Keenan explaining why fixed‑income opportunities are stronger than ever in 2026. He notes that Australian government yields sit above 6%, foreign demand remains robust, and upcoming budget changes—particularly the CGT reform—level the after‑tax playing field between bonds and equities. Key insights include a shift from floating‑rate to fixed‑rate issuance, as the market’s RBA‑rate expectations are already priced in. Keenan has locked in front‑end yields via 90‑day bank‑bill futures, effectively securing a 4.8% floating rate for a year, while also targeting 6‑10‑year fixed‑rate securities that promise 6.5%+ yields. Credit spreads widened in March, creating attractive risk‑adjusted returns, especially in investment‑grade Australian paper that now offers some of the highest base rates among G‑10 economies. Notable examples: the fund’s running yield sits at 6.5%, and recent AT1 purchases—such as a UBS deal at 7.1% and a triple‑B issue near 7.5%—illustrate equity‑like returns in a high‑quality bond context. Keenan emphasizes the importance of distinguishing running yield from yield‑to‑maturity, stressing that duration and credit quality determine sustainable income. Implications for investors are clear: with the CGT advantage removed, fixed‑income can deliver superior risk‑adjusted performance, and strategic allocation to fixed‑rate and high‑yielding AT1 securities can provide equity‑style returns without the volatility of equities. The fund’s defensive‑offensive balance and active credit‑spread management position it to capitalize on current market dislocations.

Original Description

The Yarra Enhanced Income Fund, run for nearly 25 years by Roy Keenan, has never missed a distribution and has consistently outperformed its benchmark - through all market cycles, good and bad. More importantly, Keenan believes the backdrop for income investors remains highly attractive.

“Australia is in a really good situation at the moment where we have some of the highest base rates and government yields in the whole G10,” Keenan says.

“That gives you a great starting point from a total real yield perspective. Yes, spreads are tight, but the total yield to maturity on a lot of securities at the moment is looking pretty attractive.”

Keenan also points to the outright level of income currently available in the market.

“Today in the Enhanced Income Fund, we're talking about a 6.5% running yield, which is in some ways going to get better on a 12-month booking basis. So that’s pretty attractive.”

In the interview above, Keenan explains why he believes fixed income remains in a 'sweet spot' for investors, why Yarra is rotating toward fixed-rate securities, how the proposed CGT changes could reshape the relative appeal of income assets, where the fund is finding value across bank credit and AT1 issuance, and how the team navigated the volatility sparked by geopolitical tensions and widening credit spreads.

TIME CODES

00:00 – Introduction and why fixed income still looks attractive

00:20 – Geopolitics, rate hikes and the case for fixed income

01:34 – How CGT changes could benefit fixed income investors

02:22 – What has become more attractive in credit markets

03:46 – Why Roy Keenan is leaning toward fixed rate exposure

04:13 – Locking in elevated yields through bank bill futures

05:26 – Public versus private credit and spread opportunities

07:03 – Managing fuel price and geopolitical risks in portfolios

08:32 – Where value is emerging in bank capital securities

10:14 – Avoiding the trap of chasing headline yield

11:47 – Inside the Yarra “war room” during volatile markets

13:50 – Where fresh capital is being deployed today