Monday 06 July 2015 by Lincoln Tragardh Week in review

From the Trading Desk

Greece votes ‘no’ and drives ‘risk off’ positioning, China takes further measures to support its equity market, the RBA to meet with market expectations of no rate change, strong volume is experienced in ‘safe haven’ assets such as inflation linked bonds and company updates on Adani and G8

Economic Wrap

Greece voted against further austerity measures at Sunday’s unprecedented referendum, with 61% of voters backing Prime Ministers Alexis Tsipras’s rejection of further spending cuts. This throws Greece into further uncertainty and significantly raises the chances of a Greek exit from the single currency. Europe’s leaders are holding an emergency summit on Tuesday to decide if a financial rescue is still possible. 

China has taken further measures to halt the fall in equity markets by forcing initial public offerings to be delayed and adding further liquidity to its banks. At the time of writing, those markets have rebounded 5% on the news, but expectations are for this trend to reverse and for those markets to resume falling over the course of the week.

The RBA meets tomorrow to discuss monetary policy, and consensus is for interest rates to remain unchanged at 2.0%. Following this, domestic employment figures are due to be released on Thursday, with expectations for the results to be flat and an unemployment rate of 6.1%.

US employment data was released on Friday and came out meeting expectations, with 223,000 jobs added. The unemployment rate was down to 5.3%. The US market closed on Friday for the Independence Day holiday. 

In Australia, in a repeat of the previous week, longer term rates again rose steadily during the week but fell dramatically this morning with the developments in Greece over the weekend, ending more or less unchanged from last Monday. The three and 10 year swap rates are currently at 2.21% and 3.26% respectively. Credit margins were slightly higher over the week and are currently around 101 basis points (1.01%, as measured by the 5 year Australian iTraxx credit index).


Off the back of the uncertainty in Greece there was a flight to quality with long term yields following government bonds lower in yield. As such, we’ve seen ‘safe-haven’ buying in the corporate inflation linked space, in particular clients after quality issuers such as Australian Gas Networks (formerly Envestra Ltd) August 2025 inflation linked bond and both Sydney Airports 2020 and 2030 inflation linked bonds.

The tightly held Sungroup floating rate December 2024 note became available last week, after a recent lack of supply, satisfying pent-up client demand.

In the non AUD space, the Newcastle Coal Infrastructure Group March 2027 USD bond continued to dominate as the most traded bond. Supply in this line remains good for the short term.

Company updates

In case you missed the company news we have published this week, here is a summary.

Adani Abbot Point credit margin increase provides buying opportunity

Published 3 July 2015

Last week, the credit margin on the Adani Abbot Point Terminal (AAPT) 2018 and 2020 bonds has increased by around 30 basis points (bps), with the credit margin on both now around 300bps over swap.

The move wider seems to be in relation to a number of recent news reports, particularly the article “Adani’s Carmichael Mine is unbankable says Queensland TreasuryExternal link - opens in a new window” published in the Sydney Morning Herald on 30 June. With coal prices remaining near multi-year lows, we have held the view for some time that the Carmichael project has a low probability of proceeding in the medium term and will require an improvement in coal prices for the numbers to stack up.

For the full update and list of links to related news, please see the article below.

G8 Education makes a hostile takeover bid for rival Affinity Education

Published 6 July 2015

On Friday G8 Education launched a hostile takeover bid for its smaller rival Affinity Education in a deal that would see G8 exchange one of its shares for every 4.61 shares in Affinity, valuing the company at $162m or 70c per Affinity share. The bid seems generally positive for bondholders being largely equity funded and in line with its corporate takeover policy at an estimated 4.6x forecast underlying annualised EBITDA.

For the full update please see related articles below.

Rates accurate as at 6 July 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.