Credit spreads continue to trade tighter and demand, especially for high yield AUD bonds, has increased as investors search for yield. It may therefore be a good time to take some profits
Many AUD high yield bonds have performed strongly over the last 12 months. Credit spreads continue to trade at their tightest levels seen over the last few years (as illustrated by the Australian iTRAXX index below). Demand, especially for high yield AUD bonds has increased as investors search for yield.
The table below gives examples of the performance of some AUD high yield bonds by margin and price. A strong rally is particularly evident in the last few months.
It therefore may be a good time to take some profits and/or lighten up on exposure to unrated or sub investment grade bonds. This could also be a good time to increase diversification by having a higher number of bonds with smaller face values – especially relevant for high yield or unrated paper.
The following table gives indicative levels of some AUD high yield bonds available to sellers.
|Bonds ||Maturity date ||Capital price ||Yield to worst |
|01/11/2018 ||102.10 ||4.99% |
|10/05/2020 ||105.75 ||4.46% |
|AdaniAbbot-7.10%-29May20 ||29/05/2020 ||102.20 ||6.23% |
|13/11/2020 ||104.05 ||0.30% |
|25/11/2020 ||104.90 ||5.85% |
|19/12/2020 ||102.70 ||6.60% |
|09/06/2021 ||102.00 ||5.86% |
|16/06/2021 ||102.70 ||6.60% |
|22/06/2021 ||103.00 ||6.45% |
|24/06/2021 ||107.50 ||4.98% |
|ZipMoney Trust 2017-1 B |
|10/05/2019 ||101.50 ||5.10% |
|SCT-BBSW+4.40%-24Jun19 ||24/06/2019 ||103.10 ||2.58% |
|Axsess-BBSW+6.50%-9Oct20c ||09/10/2021 ||103.00 ||6.25% |
|17/04/2022 ||102.40 ||6.88% |
Source: FIIG Securities
Accurate as at 27 July 2017 but subject to change; indicative only
In terms of reinvestment opportunities please refer to the article in last week’s WIRE where we highlighted 21 new DirectBonds made available in the last three months. It is also worth noting that given the AUD has passed 80 US cents for the first time in two years it may be a good time to consider USD investment.