Tuesday 03 October 2017 by Leigh Winton Week in review

From the trading desk

Iron ore price continues to decrease causing the AUD to fall, US unemployment data is expected Friday, FIIG originated Lucas TCS trading above $100 in secondary market and price gains in NCIG sub debt have seen investors take profit. RMBS and Sydney Airport continues to see active trading and Rackspace a go to trade for clients wanting to diversify after Transocean’s price appreciation

What’s trading

AUD

  • The RMBS space was active last week as we were able to secure large parcels with forecasted yields of over 5%pa. Subordinated debt has been an obvious switch option into these RMBS lines as the the yields on sub debt have tightened to near year lows. RMBS also offers similar systemic risk.
  • Pick up in trading of FIIG originated issues continued last week with some supply being offered up in AxsessToday fixed and floating rate notes.Small parcels of the AxsessToday notes are still available.. However, the heaviest traded FIIG issued note was the ZipMoney Trust with a small parcel  available now at an indicative yield of 6.71%pa. CML 8% 2022 has also seen some strong bidding and we are currently searching for supply
  • The Sydney Airport bonds have  again been an active trade for investors with good two way flow between them. We have seen  an increase of investors selling out of the Sydney Airport 2020 bond and switching into the  2030 bond. As such, we are seeing supply in the Sydney Airport 2030, a bond we were strongly bid for not so long ago. Both bonds are still offering great relative value at CPI + 2.21%pa for the 2020s and 2.910%pa for the 2030 bonds

Non AUD

  • Heavy trade flow continued in Newcastle Coal Infrastructure Group’s March 2027 senior secured bond as institutional demand pushed the price higher. NCIG jumped by another $3.55 relative to the previous week’s close prompting many clients to crystallise gains. The price has since tapered slightly with clients able to exit their positions at an indicative yield to worst of 8.66%
  • Rackspace Hosting November 2025 senior bond was active as many clients chose to diversify away from the oil and gas sector in favour of the technology services company. Recent price appreciation of Transocean’s July 2023 senior debt, coupled with an attractive street offer of Rackspace made it the go-to trade for many clients late in the week. Rackspace is still in good supply at an indicative yield to worst of 6.47%

Economic wrap

  • China’s central bank has cut the reserve requirement for some banks from 2018, which will encourage more lending to business
  • Iron ore continues to decrease in price which is driving the Australian dollar lower. The benchmark 62% Futures Exchange contract is trading at USD63 compared to above USD80 two months ago
  • US unemployment data is released Friday with the jobless rate expected to be unchanged at 4.4% and non farm payroll to be +80,000 according to Bloomberg
  • Credit spreads tightened a little throughout last week with the US investment grade index decreasing from 59.90 to 55.63
  • Eurozone purchasing managers data (PMI) was the highest since 2011, showing an improvement in sentiment across Europe

Other news

Adani Abbot is in the spotlight again after being highlighted in an ABC 4 Corners program on Monday night. Liquidity is available in both the 2018 and 2020 bonds and our analyst on the credit, Mary Anne Low, has not changed her views. Our latest research for investors which highlights the refinancing challenges is available online here.External link - opens in a new window

Lucas Total Contract Solutions (Holdings) has started trading above $100 in the secondary market. Investors who were successful in receiving an allocation on primary should speak to their relationship manager if their goal is to end up with a smaller position over time.

The price rise in the NCIG USD sub debt has causing a few sellers to take profit. We encourage holders to take advantage of the price gains, especially if they hold more than the minimum parcel of USD100,000. The bond is currently trading between $124.50 and $127.50 and has been as low as 103.00 in August 2016.

Demand for the Sydney Airport 2020’s has pushed up the price to $143.552 for sellers. At this level, it represents a $5 premium to its current indexed face value of $138.47, which is the amount upon which holders earn coupon.

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