Monday 08 October 2018 by Leigh Winton Week in review From the trading desk What’s trading AUD & USD Further supply in the Pacific National, formerly Asciano, 2027 floating rate note met strong demand again last week. Investors like the longer dated floating rate note exposure for portfolios, benefiting from higher interest rates and increases to the Bank Bill Swap Rate (BBSW) caused by funding pressures. There is limited supply available to wholesale investors at an indicative margin of +177bps. Nufarm’s trading halt post results and equity raising was lifted and investors resumed purchasing the 2026 US dollar bond. The bond can be purchased at an appealing discount to par, giving an attractive yield. It is available to wholesale investors at an indicative yield to maturity of 6.31%pa. Retail investors took advantage of available Plenary Justice 2030 index annuity bonds. These long dated infrastructure bonds are limited in supply and remain tightly held. Current supply has been exhausted and holders are able to sell at an indicative yield to maturity of 5.40%pa, including a 2.50% inflation target. Economic wrapStronger than expected US economic data, bullish comments by FOMC members and announcement of NAFTA’s replacement drove a sell off of US Treasuries, pushing yields to the highest levels since 2011. In Australia, weak building approval figures, declining auction clearance rates and concerns around rising fuel prices continue to point to some headwinds for the local economyThe yield differential between US and Australian government bonds is one of the main drivers of the currency. With the latest US Treasuries sell off, the differential has increased, so the Australian dollar has continued to drop from 81 US cents at the start of the year, down to 70.6 US cents at the end of last week and could be testing the 10 year low of 69 US cents from 2009.The current trend is having a negative impact on bonds that are more sensitive to interest rates. To illustrate, the highly rated Apple 2023 USD bonds dropped 60 US cents over the past week alone.