Monday 12 February 2018 by George Whittle Week in review

From the trading desk

Robust US data continues, Noble 2024 tendered above expectations, Sydney Airport rating upgraded, active USD trades in Mallinckrodt 2022 and 2023s, as well as demand for JC Penny, Rackspace and Dean Foods. Floating rate notes popular in the AUD space including Asciano 2027 and Challenger 2022 bonds

What’s trading

AUD

  • Asciano BBSW+2.60% 2027 bond was popular last week after we were able to source supply. Investors have been chasing some floating rate note (FRN) exposure to hedge against rising rates. The bond is rated BBB- by S&P and is available to investors at an indicative price of 4.75%pa. We expect the bond to be snapped up quickly as supply in FRN notes has been difficult to find over the past six months.
  • Investors sold off the Sydney Airport 2030 inflation linked bond to shorten tenor and move out of the AUD while it hovers around its recent highs against the US dollar. On the other side of the trade, we saw strong interest from the institutional market for the 2030 bond after the price came off a touch. Currently, investors can exit their positions at an indicative yield of CPI+3.05%pa
  • The Challenger BBSW+2.10% callable 2022 bond also continues to be popular. Many clients have been looking to add FRN exposure to their portfolio and Challenger has offered good relative value. For the first week this year, the Challenger 2022 traded flat at an indicative yield to worst of 4.00%pa

Non AUD

  • Following last week’s trend, USD flow was dominated by the Mallinckrodt International Finance (MNK) 2022 and 2023 senior unsecured bonds. Many clients chose to diversify away from the oil and gas sector in favour of picking up high yield exposure in the pharmaceutical sector. Supply remains good in both MNK August 2022 and MNK October 2023 with clients able to enter positions at indicative yields of 7.37% and 8.82%, respectively.
  • Focus was mixed elsewhere in the USD space with clothing retailer JC Penny, data services provider RackSpace Hosting, and food and beverage company Dean Foods all in demand. All three issues are still available in good supply at the below inductive yields:
    • Dean Foods 6.50% March 2023 – 5.71%
    • JC Penny 5.875% June 2023 – 6.10%
    • RackSpace 8.625% November 2024 – 6.46%

Economic wrap

At the risk of sounding like a broken record, robust US data continues. On Friday, the biggest upside surprise from the employment data was Average Hourly Earnings that printed at 2.9% (consensus was 2.7%). This is one of the key indicators that investors watch for any signs of inflation.

Other news

The Noble Holding 2024 tender last week saw 44% fills, well in excess of our expectations. Funds should return on or about 14 February, and the newer 2026 senior guaranteed notes have been added to the DirectBonds List. FIIG Research have summarised the changes to the DirectBond list filtering criteria and January additions, including Mallinckrodt 2020, 2022, and 2023 online here.

On Wednesday, Moody’s upgraded the credit rating for Sydney Airport’s senior secured debt which includes the inflation linked bonds (ILB) commonly held by FIIG clients. The ratings agency stated that, “the upgrade… reflects our expectations that ongoing earnings growth from increased passenger volumes will result in the airport’s credit metrics exceeding the previous… rating parameters.”

As outlined in this note last week, Sydney Airport ILBs continue to compare well with similarly rated AUD credit.

Price guidance has been announced for the first RMBS transaction of 2018 – a $750m prime deal from NAB’s securitisation program, the National RMBS Trust. Notably, the top tranche has been split into two with the A1-G certified ‘green’ by the Climate Bonds Standard Board. This is the first green securitisation domestically, and we are keen to see whether the otherwise identical A1-A and A1-G will price the same.