Monday 01 June 2015 by Lincoln Tragardh Week in review

From the Trading Desk

Bad news dominates - Dreadful capex numbers impact confidence; Greece survives another week; AUD and government yields down; and new DirectBonds from Qantas, Sun Group and Asciano dominate flows

Economic wrap 

Domestic capital expenditure declined 4.4% in the first quarter, more than double the median projected decline of 2.2%, indicating very poor domestic investment. . This follows an already bleak 1.7% drop in the final quarter of 2014. Companies predicted that they would spend $104 billion next financial year, a 25% decrease from 2015’s estimate and the largest decline since 1990. George Tharenou of UBS described Australia’s latest capital expenditure outlook as “recessionary”, with our economy struggling to find consistent growth as a result of the end of the global commodity boom.

The Greek government has stated that it will use internally sourced funds to make their EUR300m IMF payment due on 5 June, allowing Greece to survive another week. Greece’s anti-austerity Syriza government still refuses to cut public spending and raise taxes in order to avert a default. According to press reports, EU finance ministers have been told by their respective leaders to conclude the talks within the next few days if an initial technical agreement cannot be reached. Once an initial agreement is made between Greece and its creditors, EU finance ministers will need to sign off on the agreement, further delaying the restructure of Greece’s public debt.

In currencies, the AUD continued to fall against the USD over the course of the week, from a 78.24 cent high last Monday down to 76.45 cents at the time of writing.

Yields fell considerably last week, halting the steepening of the yield curve, with five year government bond yields falling by 16 basis points from 2.28% to 2.12%. Ten year government bond yields marginally outpaced their shorter dated cousins falling by 17 basis points 2.75%.

Earlier today, Australian building approvals declined by 4.4% on the month, considerably higher than the consensus 1.8% drop economists predicted. Tomorrow the RBA is unanimously expected to keep the official cash rate at 2% and on Wednesday domestic GDP figures are to be released.

Flows

Trading last week again saw high volumes in the Qantas 7.75% 2022s, which recently became available to retail investors. We also saw a lot of interest in the new 2024 Sun Group floating rate note. We have traded the immediately available supply in this name and are looking to source further stock. In the interim, we have good supply in the shorter 4.90% fixed rate Sun Group 2021. Another recently approved direct bond, the Asciano 5.25% 2025, has received a strong reception and remains in good supply. Indicative offer yields are below.

Qantas-7.75%-19May22                                     5.07% (retail and wholesale investors)

Sun Group-BBSW+2.05%-16Dec24                  4.60% (trading margin circa 1.60% - wholesale investors only)

Sun Group-4.90%-08Dec21                               4.00% (wholesale investors only)

Asciano-5.25%-19May25                                   4.63% (wholesale investors only)

Rates accurate as at 1 June 2015 and are subject to change. 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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