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Monday 17 September 2018 by Week in review

From the trading desk

Positive signs from NAFTA and US/China trade talks, AUD/USD cross currency swaps at three year high, primary issuance of AT&T 2028 popular with clients seeking extended duration, good supply of USD Nufarm 2026, investors looking ahead holding Downer November 2018s November maturity reinvest in bonds such as DBCT

What’s trading

AUD & USD

Clients participated in the primary issuance of telecom giant, AT&T’s fixed rate AUD bond. Maturing in September 2028, it pays a 4.60% semi annual coupon. It was popular with clients looking to extend duration in their portfolios. The bond will begin trading in the secondary market later this week for wholesale clients only.
Clients purchased the Nufarm April 2026 USD bond to further diversify USD portfolios. Nufarm is a leader in the crop protection industry, providing agriculture exposure. The bond is available to wholesale clients only, paying a 5.75% semi annual coupon. Supply has been good and is on offer at an indicative yield to maturity of 6.48%pa.
The shorter dated Downer 2018 bond continued selling as clients reinvested ahead of its November maturity. This reduces reinvestment risk, while also making a small gain. The DBCT 2021 floating rate note was a popular reinvestment option, available to both wholesale and retail clients, and is currently offered at an indicative yield to maturity of 4.25%pa.

Economic Wrap

AUD/USD cross currency swaps remain close to a three year high, making AUD debt for foreign issuers very attractive but USD debt for Australian issuers expensive.
This is boosting AUD issuance to a record high with strong demand from foreign issuers, as evidenced by the AT&T proposed AUD1.325bn multi tranche issues priced last week and subsequent talks about General Motors. Looking at the bigger picture, both the Bank of England and ECB left rates unchanged last Thursday night on the back of muted recovery and trade tension, noting some positive signals emerging from both NAFTA and the US/China trade talks. It is probably too early to call it progress though.

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