Friday 28 July 2017 by William Arnold Trade opportunities

AUD high yield – time to take profits?

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

mountain expedition

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
AdaniAbbot-5.75%-1Nov18
01/11/2018 102.10 4.99%
CapitolHealth-8.25%-10May20
10/05/2020 105.75 4.46%
AdaniAbbot-7.10%-29May20 29/05/2020 102.20 6.23%
AAT-7.50%-13Nov20
13/11/2020 104.05 0.30%
SUNLAND-7.55%-25Nov20
25/11/2020 104.90 5.85%
NRW-7.50%-19Dec20
19/12/2020 102.70 6.60%
NEXTDC-6.25%-9Jun21
09/06/2021 102.00 5.86%
Plenary-7.50%-16Jun21
16/06/2021 102.70 6.60%
Axsess-7.50%-22Jun20c
22/06/2021 103.00 6.45%
SCT-7.65%-24Jun21
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%
Moneytech-BBSW+4.65%-17Apr20c
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 monthsExternal link - opens in a new window. 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.

 

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