Tuesday 05 December 2017 by Leigh Winton Week in review

From the trading desk

Positive US economic data continues, new Adani US denominated bond and Elanor tapped an increase into its 2022 bond. Challenger offers subordinated debt 2022 bond, popular trades in Barminco with Noble and JC Penney beneficiaries of USD flows. Limited supply in new RMBS issuances and Windstream potential bankruptcy 

What’s trading

AUD

  • After speculation of a potential new US dollar denominated Adani Abbot Point Terminal (AAPT) Bond, Adani issued a USD500m  4.45% coupon 5 year bond. This was great news for the AAPT 2018 & 2020 AUD bonds that many of our investors hold and we saw yields on the AAPT 2020s bonds tighten 119bps. Following the price appreciation, investors saw great gains from exiting their position in the 2020 AUD bond. However, on the other side of this trade were investors who see greater potential capital appreciation where the USD bonds are currently trading at tighter levels at a yield of 4.5%pa, roughly 60bps tighter than the 2020 AUD bonds.
  • The recently issued Challenger FRN callable 2022 bond started trading in the secondary market last week and its price rallied in-line with comparable bonds. The bond is currently trading at an indicative yield of 3.90%pa. Investors who have been starved of subordinated debt, due to the lack of supply, have jumped at the opportunity to add some exposure to their portfolios. We expect the bond to trade in line with other similar subordinated debt, such as the AAI FRN callable 2022 bonds that are currently trading at a yield to worst of 3.65%pa.
  • There were plenty of RMBS new issues and we were able to secure some attractive ‘C’ notes, rated ‘A’ by S&P. They are currently trading with a forecasted yield of 4.63%pa.   A small parcel remains, but expect these to be purchased quickly.

Non AUD

  • The January 2024 fixed rate senior note from Noble Holdings International has been actively traded since its addition to the DirectBond list last month. That trend continued last week as price weakness made a compelling case for investors looking to add exposure to the energy sector. The price of the Noble bonds rebounded late in the week however clients are still able to add positions at an indicative yield of 10.03%.
  • Mining services provider Barminco Finance remains popular as good supply of the USD May 2022 fixed rate senior bond continued to flow out of Asia. Available to clients at a small premium to par, Barminco represents one of our higher yielding options in the mining space. Clients looking to enter a position can expect an indicative yield to maturity of 6.53%.

Economic wrap

Positive US economic news continued with the majority of last week’s data releases matching or beating expectations. The important PCE Core, the Fed’s preferred inflation measure, came in at 1.4% beating consensus of 1.3%and highlights the Fed’s dilemma with inflation so low, is there a need to continue to rate hikes in 2018?

Other news

Elanor tapped a bond issued by the group in October for A$20m, with the proceeds to be used in a similar manner to those from the initial bond issue. The company will cornerstone the launch of new funds from existing opportunities. The ASX listed diversified property fund management group has over A$1bn of property under management as at November 2017.

Adani’s Abbot Point Terminal (AAPT) raised US$500m last week. This significantly reduces the 2018 refinancing hurdle and is a positive for the May 2020 bond, which rose above $103.00.

For the remaining holders of Windstream, we reiterate that we have a ‘Sell’ recommendation on both the 2020 and 2025 securities. This is largely due to anexternal third party provider believing the company will have no alternative but to file for bankruptcy within the next 24 months.

Noble and JC Penney have been the beneficiaries of US dollar flows this last week. Noble is in offshore drilling and JC Penney is navigating the changing department store environment. 


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