Tuesday 31 May 2016 by William Arnold Trade opportunities

Incoming cash means investors have to make some decisions

Over the next few months there are quite a few maturing bonds – meaning many investors will need to decide what they do with the cash

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In June, seven bonds are due to mature, forcing investors to make a choice on how they use the funds. Some companies have issued new bonds to refinance the maturities making it an easy option for investors to choose to reinvest in the new bond.

Given the wave of cash that’s about to hit accounts, it might be smart to consider selling the bond prior to maturity (actively managing your funds) and reinvesting now when there are more bonds available.

While a passive investor waits for maturity before reinvesting the maturing proceeds, an active manager considers the alternatives that may be available prior to maturity.

By waiting for maturity, the passive investor limits their reinvestment opportunities to those bonds available on the maturity date, or worse, yielding a cash return while they wait for a suitable opportunity. They also have to compete with all the other investors in that bond for suitable assets on maturity.

Another consideration is maintaining a risk return profile.  As a bond nears its maturity date, credit risk reduces. As risk reduces so does return. Therefore, the passive investor will hold a progressively lower yielding and lower risk exposure as the bond approaches maturity compared to the original investment profile. The key point here is that the benchmark for comparison is not the actual bond they invested in, but the original investment profile.

For more details and examples of managing reinvestment risk, please the link below to an article by see Kieran Quaine, Head of FIIG’s Managed Income Portfolio Service.

Significant maturities

The following table details the upcoming call or maturity dates of bonds to which FIIG clients’ have a material holding.


Call/maturity date FIIG bid
FMG 8.25% 1Nov19 USD
1 June 2016 n/a
BLUESCOPE 7.125% 1May2018 USD
6 June 2016 n/a
DBCT(DALRYMPLE) 6.25% 09Jun16
9 June 2016 n/a
DBCT(DALRYMPLE) BBSW+0.25% 09Jun16
9 June 2016 n/a
NATIONALWEALTH BBSW+0.63% 16Jun16c
16 June 2016 $100.00
NATIONALWEALTH 6.75% 16Jun16c
16 June 2016 $100.00
GENW BBSW+4.75% 30Jun21
30 June 2016 $100.20
TELSTRA 7% 02Aug16
2 August 2016 $100.50
NABCAP  BBSW+0.95% 30Sep16c 30 September 2016 $99.10 
AAI 6.75% 6Oct26
6 October 2016 $100.70 
AXA 7.5% 26Oct16c
26 October 2016 $100.55 
AXA BBSW+1.4% 26Oct16c
26 October 2016 $98.75 

Source: FIIG Securities
Note: Some of these assets are callable, at the issuer’s discretion, and although the probability of a non call event is considered low, as reflected by the market price

Possible switch targets

There are multiple potential switch targets so please speak to you FIIG representative. The table below summarises some of the options.


Capital Structure Bond Type Yield to call/maturity  Income/running yield
Virgin Australia 8.5% USD 15Nov19
Senior Fixed  6.815%
8.08% 
BlueScope Steel 6.5% USD 15May21
Senior
Fixed  5.365%
6.19% 
DBCT(DALRYMPLE) FRN 9Jul21
Senior
Floating  5.304%
3.00% 
AAI-BBSW+3.30%-18Nov20c
Tier 2
Floating  4.62% 5.13% 
MEBANK-BBSW+2.70%-29Aug19c
Tier 2
Floating  4.641%
4.69% 
ANZ-BBSW+1.93%-25Jun19c
Tier 2
Floating  3.655%
4.20% 
ANZ-BBSW+2.70%-17May21c
Tier 2
Floating  4.151%
4.55% 
Source: FIIG Securities

​Prices accurate as of 31 May 2016 but are subject to change.

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