Tuesday 04 December 2018 by FIIG Research Sales commentary

From the trading desk

US and China reach agreement to postpone tariff increase, oil price rollercoaster continues, new Bendigo & Adelaide Tier 2 issue begins trading in secondary, the Virgin 2021 USD bond a switch target and investors continue to add investment grade bonds. Renewed interest in the Adani 2021 USD bond following announcement to self fund the Carmichael mine project

AUD & USD

  • The new Bendigo & Adelaide (BEN) 2023 call Tier 2 issue began trading in the secondary market.This allowed holders of the shorter BEN 2019 call sub debt issue to increase their return and tenor by switching into the recent issuance.The 2023 call FRN is available to wholesale investors at an indicative margin of 3mBBSW+ 2.01%.
  • Since rallying in price, wholesale holders of the Virgin 2023 AUD have taken profits and switched to the Virgin 2021 USD bond.The switch increases their return and shortens the investment term, while maintaining exposure to the same credit in a different currency.Investors can purchase the Virgin 2021 USD bond at an indicative yield to maturity of 7.91%pa.
  • Supply in Pacific National 2027 FRN was uncovered last week after a hiatus in supply.Demand remains strong, as investors continue to add investment grade bonds to portfolios.
  • There has been renewed interest in the Adani Abbot 2022 USD bond after Adani announced it will self fund the Carmichael mine project.The bond, available in $200,000 parcel sizes, offers better relative value compared to its 2020 AUD bond.The USD bond is available to wholesale clients at an indicative yield to maturity of 7.41%pa but you have the added currency risk.

Economic wrap

  • A speech from US Federal Reserve chairman Jerome Powell last Wednesday night took the markets by surprise with a relatively dovish tone that has everyone questioning if three rate hikes in the US during 2019 are still on the cards. A December increase seems almost certain but the path beyond that is now unclear. The reaction from the market was positive, with equities trending upwards and the US 10-year Treasury briefly dropping below 3% on Thursday night.
  • The oil price rollercoaster has continued all week given the continued uncertainty in the commodities market ahead of the OPEC meeting next Thursday. Interestingly, oil prices have been surprisingly predictable insofar as a negative movement one day was followed by positive momentum the following! In other words, nobody quite knows where this will land.
  • Bank of England governor Mark Carney released the BoE’s view on what a no deal Brexit would mean for the UK economy early Thursday morning our time. It was a rather chilling reminder of the potential downside, but went broadly unnoticed given the confluence of other events capturing the headlines.
  • The week was wrapped up on a positive note, with the US and China reaching an agreement over the weekend to postpone tariff increases for 90 days to allow further trade talks between the two countries. Clearly nothing firm yet but at least, both sides are engaging.

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