Monday 11 November 2013 by Guest Contributor Company updates

DBNGP added to retail bonds list - boost your yield and diversify

Key points:

  1. Dampier Bunbury Natural Gas Pipeline has been added to the retail bond list
  2. DBNGP offers one the highest fixed rate returns at 5.65%
  3. This article also provides a list of comparable bonds and their current returns; Stockland and JEM (Southbank) also offer high fixed rate returns around 5.30%

This week the DBNGP Finance Corporation Pty Ltd (DBNGP) fixed rate bond maturing in 2019 became available to retail clients. Currently, this bond offers a 5.65% yield to maturity, the best return of any of the fixed rate bonds available to retail clients and at the same time offers the opportunity to invest in an investment grade piece of monopoly infrastructure central to the ongoing function of the West Australian economy.

On a relative value basis DBNGP offers a strong argument to be added to retail portfolios, offering the highest yield to maturity out of any fixed rate bond currently available. Further, with a maturity in 2019 the bond also takes advantage of the steepening in the yield curve which I discussed in “Seven year bonds offering up to 7.58% yield to maturity ” in last week’s Wire. Figure 1 below compares DBNGP’s yield to maturity compared to the other fixed rate options available to retail investors. As you can see from the graph only JEM (Southbank Tafe) offers a comparable return to the DBNGP bonds, however JEM also has an extra year to maturity.

retail relative value chart
Source: FIIG Securities
Figure 1

Given the outright return opportunity provided by the steepening of the yield curve, retail investors should strongly consider adding DBNGP to their portfolio’s when the bond becomes available.

Below, in Table 1, is the list of comparable corporate fixed rate bonds with similar maturities available for retail clients. FIIG continue to seek more opportunities for retail investors and will add more bonds to this list as bond documentation allows.

list of comparable corporate fixed rate bonds

Table 1

Key terms

Running yield

Running yield uses the current price of a bond instead of its face value and represents the return an investor would expect if he or she purchased a bond and held it for a year. It is calculated by dividing the coupon by the market price.

running yield equation

Trading margin

The expected return earned on a floating rate security in addition to that security’s reference rate. Also known as the ‘Discount Margin’.

Yield to maturity

The return an investor will receive if they buy a bond and hold the bond to maturity. It is the annualised return based on all coupon payments plus the face value or the market price if it was purchased on a secondary market. Yield to maturity thus includes any gain or loss if the security was purchased at a discount (below face value) or premium (above face value). It refers to the interest or dividends received from a security and is usually expressed annually or semi-annually as a percentage based on the investment’s cost, its current market value or its face value. Bond yields may be quoted either as an absolute rate or as a margin to the interest rate swap rate for the same maturity. It is a useful indicator of value because it allows for direct comparison between different types of securities with various maturities and credit risk. Note that the calculation makes the assumption that all coupon payments can be reinvested at the yield to maturity rate. Also, the yield and coupon are different

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