RBA Rate Cut Strengthens Fixed-Income Alternatives

On 20 May 2025, the Reserve Bank of Australia (RBA) lowered its cash rate by 25 basis points to 3.85%. This move is the second rate cut of 2025, it reflects easing inflation (with CPI now ~2.4%) and rising global uncertainties. Lower RBA rates tend to push bank deposit and government bond yields down. Australian savers and retirees face reinvestment risk as traditional term-deposit and bond returns decline. As a result, many investors are turning to alternative fixed-income funds to preserve income and seek higher yields.

Household Income, Consumption and Financial Pressures

Domestic demand is reviving, but momentum is weaker than earlier assumed. Easing inflation and Stage 3 tax relief have lifted real household incomes to roughly pre-pandemic levels, freeing cash for discretionary spending. Nevertheless, caution prevails: the RBA has slashed its 2025 consumption-growth forecast to 1.9 per cent from 2.6 per cent and warns the rebound may soften further. After years of elevated living costs and larger mortgage payments, many households remain wary.

Financial stress is distributed unevenly. Most mortgage holders retain healthy equity positions, and arrears have stabilised, yet higher interest rates are still squeezing monthly budgets. By contrast, smaller firms are struggling, and insolvencies have risen to the upper end of historic ranges as tight credit and sticky cost pressures erode margins, though system-wide corporate risks appear contained.

Given subdued demand and inflation now within target, the Board concluded that a modest rate cut was warranted to underpin income growth and encourage spending while safeguarding price stability. The policy move should ease financial conditions, but the Bank emphasises that any recovery in household consumption will be gradual. Overall, balance-sheet repair has begun, yet the upturn in demand looks set to unfold slowly and unevenly through 2025-26, broadly across the domestic economy.

Alternative Investments for Australian Investors

With cash and deposit rates projected to fall, wealth managers advise exploring alternative income strategies. For example, one analysis notes that “as cash and term deposit rates are expected to decline, investors willing to accept more risk may find better opportunities in alternative enhanced income investments, including corporate bonds, private debt, and structured credit.”. In this context, the Decode Protected Yield Fund (DPYF) offers a fixed-income alternative for Australian investors. DPYF is structured as a high-quality managed fund that targets stable income with capital protection features. Key features of DPYF include:

• 10% p.a. Target Return (Net of Fees): The fund aims for a 10% annual return, paid via a fixed distribution schedule.
• Monthly and Semi-Annual Payouts: Investors receive a fixed 0.5% monthly distribution (plus bonus distributions of 2% in the 6th and 12th months). DPYF delivers a consistent, fixed monthly income, rare among typical bond or cash funds.
• Fully Redeemable & Flexible: DPYF offers monthly full redemption with no penalty, giving investors liquidity on demand. Unlike locked-in term deposits, you can cash out according to a simple notice period.

RBA Policy Supports DPYF’s Appeal

With the RBA cutting the cash rate to 3.85 %, bank deposits and government bonds now offer slimmer yields. Lower rates push savers to look beyond term deposits, and advisers note that investors no longer need to “stick with cash” when alternatives can deliver higher income without sacrificing liquidity. The Decode Protected Yield Fund (DPYF) meets this demand by investing solely in secured notes that finance an actively managed strategy, targeting a fixed 10 % return after fees. Because DPYF’s distributions are locked in, its yield is unchanged by central-bank moves, widening the gap versus products whose coupons fall alongside policy rates. The fund pairs that premium yield with principal security, strict exposure limits, and a focus on liquid currency pairs, offering predictable income and controlled risk. Meanwhile, bond funds and fixed-income ETFs are already attracting inflows as investors anticipate further easing, underscoring the hunger for yield. A softer rate outlook can weaken the Australian dollar, creating tactical opportunities for DPYF’s currency trades. In short, the RBA’s dovish turn magnifies the appeal of alternative fixed-income vehicles that combine higher returns, capital protection, and redemption flexibility.