Tuesday 24 March 2015 by Lincoln Tragardh Week in review

From the Trading Desk

This week: US Fed removes the word ‘patient’ and US and Aussie yields fall; two new FIIG-originated bonds launched – Dicker Data Ltd and McPherson’s Ltd; flows dominated by switches into the two new issues and results in a wide variety of bonds becoming available; and Swiss Re announce a tender offer for their Tier 1 securities.

Economic wrap

The economic landscape last week was dominated by the US Federal Reserve which released its much anticipated statement on monetary policy. There was wide speculation on whether the Federal Open Market Committee (FOMC) would remove the word ‘patient’ from their statement, which they had previous used, referring to when they may elect to raise interest rates. Many had expected ‘patient’ to be removed - which it was - however FOMC Chair, Janet Yellen, addressed this sticking point by later saying in a press conference, “just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient.”

Markets had expected the removal of the word ‘patient’ from the FOMC statement to be accompanied by far less dovish commentary. The FOMC instead noted that growth had slowed in the first quarter of this year and that any rate rises would need to be supported by positive economic data. Markets interpreted the statement to suggest that the first rate rise may come beyond June, and that an eventual tightening cycle may be more gradual than previously thought.

In immediate response to the FOMC, both US and Australian bonds rallied significantly, with yields falling around 15-18 basis points in the US and 10-15 basis points domestically. Overall for the week our Government bonds followed US Treasuries, falling 7 basis points to 1.87% in the 5 year and 10 basis points to 2.38% in the 10 year.

The Australian dollar appreciated against the US dollar over the week, rising from 76.35 US cents to 77.75 US cents. That trend has continued, with the dollar currently around 78.5 US cents.

For further information on the FOMC statement please see Has the Fed really lost ‘patience’ with the US interest rates?

Flows

With FIIG launching 2 new primary bond deals across 3 tranches last week (see below), we saw little secondary buying. With many clients switching into the new transactions, supply improved across most names. These new issues present an excellent opportunity to access existing bonds as investors sell down their holdings to participate in the new offers. Please contact your dealer for more information.

New DirectBonds (by Will Arnold)

Dicker Data Limited

On 16 March 2015, Dicker Data Ltd launched a $40m five year floating rate bond through FIIG. The company is one of the top three IT distribution companies in Australasia with a 36 year trading history and is ASX listed (ASX: DDR) with a market capitalisation of ~$216m. The interest rate will be 90 BBSW plus a margin of 440bps which at current market rates, will deliver an indicative first coupon of 6.725% and an estimated yield to maturity of 6.90%. This issue is scheduled to start trading in the secondary market on 26 March and is available to wholesale investors only (minimum face value parcel size of $10,000).

A detailed research report on Dicker Data Limited can be viewed here.

McPherson’s Ltd

On 20 March 2015, McPherson’s Ltd launched a $60m bond through FIIG. The company is an ASX listed (ASX: MCP) diversified consumer business with a large portfolio of leading brands such as Manicare, Dr LeWinn’s, Euromaid, Baumatic and Multix as well as managing significant brands for Procter&Gamble (Hugo Boss, D&G and Gucci fragrances) and Trilogy. The company was founded in 1860 and has a current market capitalisation of ~$112m.

The bond issue comprises two $30m series:

  • Series A: $30m four year floating rate notes to be issued at 4.30% over 90 day BBSW which at current market rates, will deliver an indicative first coupon of 6.60% and an estimated yield to maturity of 6.70%
  • Series B: $30m six year fixed rate bond with a coupon of 7.10%

Both series are scheduled to start trading in the secondary market on 31 March and are available to wholesale investors only (minimum face value parcel size of $10,000).

A detailed research report on McPherson’s Ltd can be viewed here.

Swiss Re launches tender offer (by Justin McCarthy)

Swiss Re launched a tender offer on 18 March for a number of Tier 1 perpetual securities, including the AUD fixed and floating securities callable on 25 May 2017.

For more information please see the article Swiss Re launches tender offer.

All holders should have recently received an email from FIIG Client Services with details of the tender, including voting instructions (to be received by no later than 4.00pm AEST Thursday 26th March 2015 should they wish to proceed with the tender). If you have not received the email or have any queries on the tender process, please contact the Client Services team by email (at ClientServices@fiig.com.au).

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities. For more information, please call your FIIG representative or our general line 1800 01 01 81.

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