PIMCO Australia expects term deposit rates to come down significantly over the next six to 12 months, as banks have started tightening their five year rates.
"Our view is that term deposit rates will start to come off quite significantly," PIMCO Australia head of global wealth management Peter Dorrian said.
"We have already seen five year rates for term deposits come off quite significantly. That hasn't filtered into the 12 month rate year, but our view is that over the next six months or so we will start to see those come down. It will be less attractive for investors," he said.
In April, five-year term deposits were still offered at close to 7 per cent, while currently these rates are offered between 6.40 - 6.60 per cent a year.
However, most investors in term deposits choose for relatively short term periods, with the three-month term being one of the most popular options.
"Interestingly, one or two banks have also started putting on quite high exit penalties if you leave a term deposit earlier than full term, so there are a few issues around liquidity that advisers are concerned about for their clients," he said.
Term deposits have formed tough competition for bond managers, and a reduction in rates would make their products more attractive.
