Wednesday 17 October 2018 by Leigh Winton Sales commentary From the trading desk Domestic equities are down 2.2% for the year to date, US treasury yields are also down, while gold is up. Global investors as well as clients are reducing risk. Clients are looking to increase floating rate holdings, with Pacific National 2027 being popular. What’s trading AUD & USD An institutional seller of the inflation linked Sydney Airport 2030 bonds was found earlier this week, satisfying retail demand built up over weeks.Holders of the shorter dated 2020 bonds switched to the 2030 bond on longer dated inflation expectations, and also extended duration with the 2020 line moving closer to maturity.The Sydney Airport 2030 bond is available in limited supply at an indicative yield to maturity of 5.11%pa, assuming a 2.50% inflation expectation.Investors continue to add floating rate note (FRN) exposure to portfolios, particularly medium to longer term notes, in anticipation of interest rate increases late next year.The Pacific National 2027 (formerly Asciano) was very active while supply lasted, but now wholesale demand is switching to the subdebt and highly rated RMBS securities.The Suncorp 2023 callable FRN is actively traded, offered at a margin over Bank Bill Swap Rates (BBSW) of +1.50bps, and also popular is the Insurance Australia 2024 callable FRN at a margin over BBSW of +159bps.Wholesale investors are adding new IAMGOLD 2025 positions to their portfolios after the recent credit rating upgrade.Moody’s upgraded the rating one notch due to low leverage and good liquidity.The US dollar high yield bond is offered at an indicative yield to maturity of 6.54%pa. Economic wrap The share market is down, government treasury yields are also down and the gold price up – does that sound familiar? Seems reminiscent of 2008, but it is clearly it is too early to be definitive. However, nervousness is increasing with increased volatility and investors moving to safer assets.Despite the market jitters, the International Monetary Fund’s latest economic outlook, shows healthy global GDP for next year still at 3.7% and Australia at 2.8%. Interestingly though, the IMF is seeing global growth slowing down at a marginally faster pace than before, trimming its medium term outlook by about 0.2% to 0.3%.We think that uncertainty and volatility will remain for the rest of the year, as the key global concern - a US-China tariff agreement appears unlikely before the US mid-term elections in November.