As an Australian institutional portfolio manager you have a limited universe of possible investment choices in which to invest A$100 million of client funds. Your investment universe consists of the following three bonds:

• LUV 5.250% 04-May-2025 bond (ISIN: US844741BJ60)
• ULVR 2.900% 05-May-2027 bond (ISIN: US904764AY33)
• AUGV 0.500% 21-Sep-2026 bond (ISIN: AU0000106411)

Which investment would you prefer?

Write a report (1,500-word limit) in which you carefully explain your investment choice. Your report should begin with a description setting-the-scene with regards your economic and market expectations including your view on the current and future interest rate term structure - as this will impact your investment choice. You should incorporate an evaluation of the relative risk and return inherent in each bond, and relate this to your prevailing market view. A brief summary of how credit risk differs between the 3 bonds is sufficient. You can invest in a mixture of the bonds but should justify why this is appropriate given your expectations.