Monday 15 June 2015 by Lincoln Tragardh Week in review

From the Trading Desk

RBA Governor suggests an easing bias, economic commentators suggest the US hold off on rate rises to enhance economic stability, Greece is downgraded, SCT Logistics launches $85m issue, CBL Corporation is upgraded and PMP reiterate their FY15 guidance

Economic wrap 

Governor of the RBA, Glenn Stevens spoke to the Economic Society of Australia in Brisbane last Wednesday, offering some insight to his views on the current and future state of the Australian economy. Notably, Stevens mentioned the RBA remains “open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth”.

Despite this, Australian Government 10 year yields continued to steepen, primarily due to positive US retail sales data, which rose 1.2% from the previous month and is thought to heighten the likelihood of a Fed rate hike in the next year.

World Bank Economist, Kaushik Basu, stated however that the Federal Reserve should stave off a rate hike until “next year instead of late this year”, to reflect the mixed global economic outlook. He suggests that a rate hike would increase global market volatility and weaker economies would particularly suffer. This commentary complements those issued by the IMF last week. The fund stated that a rate lift should be delayed “into the first half of 2016”, as deferring rates would “provide valuable insurance against the risk of disinflation, policy reversal, and ending back at zero policy rates”. Such explicit commentary on US economic policy is all but unprecedented for the fund, which emphasises its gravity.

S&P downgraded Greece’s credit rating from CCC+ to CCC to better reflect their opinion that, “in the absence of an agreement between Greece and its official creditors, the Greek government will likely default on its commercial debt within the next 12 months”. The ratings agency stated that Greece’s decision to combine its IMF payments, into a EUR1.5bn payment due on 30 June, may indicate the country’s focus on domestic spending over scheduled debt service obligations. S&P’s official outlook on Greece is “negative”, meaning another potential ratings downgrade may occur within the year.

In Australia, employment reached an all-time seasonally adjusted high of 11,759,600 last week, following the release of Australian employment data. The data well and truly exceeded expectations, with 42,038 jobs created during the month, well in excess of the consensus expectation of 15,000. Additionally, unemployment has dropped to a 12-month low of 6% however many, including AMP Capital chief economist Shane Oliver, are perceiving this as “too good to be true” and could be due to poor methodology.

Last week yields fell slightly with volatility around employment data and ongoing concerns in Greece. Government bond yields fell by six and five basis points in the five and 10 year, to 2.31% and 3.02% respectively. In currencies, we saw the Australian dollar appreciate against the USD, from 76.20 US cents to 77.31 US cents over the week.

Flows

We saw a pick up in interest for the Adani Abbot 2020 fixed rate bonds last week, as it become available to retail investors in $10,000 parcels. We currently have supply in this name which is indicatively offered at a yield to maturity of 5.29%.

The difficult to find, high yield USD offering from Newcastle Coal Infrastructure Group (NCIG) has become available. The bonds are only available in $100,000 minimums to wholesale investors. 

SCT Logistics launches $85m bond issue

SCT Logistics, a national multi-model transport and logistics company launched a dual tranche deal through FIIG last Friday. The unsecured, unsubordinated, unrated, Australian dollar fixed and floating rate note offering is available to wholesale investors only with a minimum subscription of $50,000. See the full article here for more information.

Rating agency A.M. Best upgrades CBL Corporation

Insurance credit rating agency A.M. Best has upgraded the financial strength rating of CBL Insurance Ltd (CBL) to B++ (Good) from B+ (Good) and the issuer credit rating to "bbb" from "bbb-". The outlook for the ratings has been revised to stable from positive. Read the full article here for more information.

PMP trading update

PMP has released a trading update to the ASX reaffirming its guidance for FY15.  Further to this, PMP stated it has “commenced the evaluation of the existing bond with a view to potentially securing lower cost funding and increasing regular and sustainable returns to shareholders.”

These comments reaffirm the previously highlighted opinion that PMP will likely call its bond at first opportunity in October 2015 at $103. Please click here to read the full article.

Rates accurate as at 15 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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