Wednesday 31 October 2018 by Leigh Winton Sales commentary

From the trading desk

Global sharemarket losses sent a strong signal to investors with many clients continuing to move up the credit spectrum.

AUD & USD

  • We managed to secure good supply in the often hard to source Pacific National (formerly Asciano) floating rate note (FRN) 2027 bond.Given corporate issuance is more skewed to fixed coupon bonds, there is limited ongoing supply, which is available to wholesale clients only.It is offered at an indicative margin of BBSW + 1.73%. 
  • With recently market volatility clients have been increasing their investment grade allocation.The NCIG Sep 2027 senior ranking USD bond has been popular, available in smaller USD10,000 minimum parcels.It remains in good supply and offered to wholesale investors at an indicative yield to maturity (YTM) of 5.45%pa.
  • Diversified portfolios will still hold preferred HY bonds to improve investment returns.Over the week there has been demand for the Virgin 2023 in AUD, available to wholesale clients at an indicative YTM of 6.87%pa.
  • The recently issued Firstmac 2018-3 Class C notes and Harvey 2018-1 Class C notes began trading in the secondary market to strong demand.The Harvey notes remain available at an indicative margin of BBSW + 2.37%pa.

 Economic wrap

  • Not a week for the faint-hearted, especially for those heavily invested in equities with the Dow Jones and ASX 200 closing the week 3.06% and 4.62% down respectively, also experiencing major intraweek movements.
  • Bond markets however continued to prove the resilience of the fixed income asset class, with the USD B curve finishing the week only about 15bp higher compared to the start of the week and the USD BBB curve 5bp tighter. This was helped by the US 10-year treasury yield dropping about 12bp over the period, compensating some minor spread widening.
  • The potential fallout between the US and Saudi Arabia from the disappearance of Saudi journalist Jamal Khashoggi remains unclear at this stage, with the 2.8% drop in oil price during the week reflecting clear signals by Saudi Arabia that they are ready to step in and add production to compensate any shortfall due to Iranian sanctions.

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