Tuesday 27 November 2018 by FIIG Research Sales commentary

From the trading desk

Eyes on oil price, rates on hold, investor focus on Tier 2 securities, sell off in NRW ahead of December call date and switches into the high yield Virgin 2021 bond

AUD & USD

  • Tier 2 securities continued to be the focus as AMP 2023c began trading in the secondary market.Clients took advantage of the opportunity to invest funds ahead of the holiday period.The bonds are available to wholesale investors at an indicative margin of 3mBBSW+2.37%.
  • In RMBS new issuance, FIIG secured an allocation in the Resimac Premier 2018-2 Class C and D notes in primary.Both tranches began trading in secondary this week and wholesale clients can access the C notes at an indicative margin of 1mBBSW+2.47%.
  • NRW will redeem their 7.50% December 2020 notes at the early call option on 19 Dec 2018 at $102. Bondholders have been selling ahead of the call date and reallocating to eliminate reinvestment risk.Popular reinvestment options have been AUD HY bonds, such as NextGen, offered at an indicative YTM of 7.42%pa and Centuria FRN 2021, available at an indicative margin of 3mBBSW+3.33%.
  • In USD bonds, wholesale investors have been switching in to Virgin 2021 USD, which offers a high yield for a short investment period of only three years.With the price moving lower recently, investors are able to purchase bonds close to par, and offers an indicative YTM of 7.90%pa.

Economic wrap

  • In a week traditionally quiet due to Thanksgiving, attention was firmly on the oil price ahead of the 6 December OPEC meeting. Will production be cut next year to support prices or will Trump exert sufficient influence on Saudi Arabia? This is made even more complicated by the recent events around the disappearance of Jamal Khashoggi.
  • The RBA published the minutes of its latest meeting last Tuesday, indicating some positive signals in the economy, although not sufficient to materially change the current consensus of no rate movement until the second half of 2019 at the earliest.
  • Iron ore is in free-fall with Monday recording the largest decline in benchmark price in 18 months.
  • Microsoft has dethroned Apple as the most valuable US company with a market value of about $812bn.

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