Tuesday 05 December 2017 by Leigh Winton Week in review

From the trading desk

US quiet with Thanksgiving holiday, high volume trades in Adani Abbot Point following news of a potential new US dollar bond issuance. Avon 2022 bonds attractive for USD high yield portfolios and Barminco popular on Asian trades. Cash Converters 2018 bond a good place for short term investment and active trading in RMBS 

What’s trading

AUD

  • Following news of a potential new US dollar denominated Adani Abbot Point bond, we saw an increase in trading across the Adani 2018 and 2020 bonds. The Adani Abbot Point Terminal 7.10% 2020 bond had great two way flow as current holders saw the news as an ideal time to exit after the bond tightened slightly. However, on the other side of this trade were investors still seeing great relative value and making a popular switch into the Adani 2020s out of the much loved Liberty 5.10% 2020 bond. The switch offered a yield pick up of 1.80%pa
  • The short dated Cash Converters 2018 bond has seen great two way flow. Investors holding cash have looked to invest it into a short dated bond at much more attractive rates than bank term deposits. Currently, the most attractive yielding one year term deposit offers investors a yield of 2.55%pa, while the Cash Converters September 2018 bond is offered at an indicative yield of 7.00%pa
  • We were able to source some attractive “A” rated RMBS last week that were offering a forecasted yield of 4.74%pa and a WAL of 5.1 years. Switching out of sub debt was an obvious move, as RMBS offer similar systematic risk but a rating upgrade and a higher forecast yield

Non AUD

  • Supply in the USD space was limited last week due to the Thanksgiving holiday on Thursday. However, mining services provider Barminco Finance proved popular as supply continued to flow out of Asian trading desks. Supply continues to be available in the fixed rate May 2022 bond at an indicative yield of 6.53%
  • Global beauty product manufacturer Avon International’s August 2022 fixed rate bond was active early in the week as the prospect of adding a senior secured option to USD high yield portfolios resonated with clients. Avon is still in good supply with clients able to enter the position at an indicative yield of 6.67%

Economic wrap

It was a relatively quiet week with the Thanksgiving holiday in the US on Thursday. However, US data disappointed; Durable Goods, Capital Goods, Manufacturing PMI and Services PMI all printing below consensus. It wasn’t all doom and gloom, as the important Leading Index was at 1.2% versus expectations of 0.8%.

Other news

Challenger Life issued an A$400m Tier 2 subordinated bond last week. The issue is floating rate, paying quarterly coupons of BBSW + 2.10% and callable after 5 years. The factsheet is available here for wholesale investors.

Reinvestment of IPG money continues. Cash Converters was the main beneficiary with investors attracted to the above 7% yield for less than one year, even allowing for the refinance risk.

Adani’s Abbot Point 2020 bond has been trading in high volume as several international banks and corporate advisors roadshow a US dollar bond for the company. Sellers are keen on realising an above par price whilst new buyers assume spread tightening will occur if the US issue is successful, resulting in price appreciation.

RMBS continues to trade actively with ME Bank’s SMHL C note  available last week. The C note is the third most junior in the capital structure and carries an A+ rating from S&P. Talk to your relationship manager if you want further detail on this or similar transactions.

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