This week: Underlying inflation in RBA target range, iron ore extends gains, inflation linked bonds experience strong flows, Fortescue successful with $2.3bn secured bond issue, Newcrest delivers a strong March quarterly result and Dicker Data report ‘on track performance’ with a solid outlook.
Economic wrap Australian inflation figures (CPI) for the first quarter were released last week at 1.3% year-on-year, down from 1.7%. However underlying (excluding volatile items) CPI was 2.3%, up by 0.1% from last quarter and well within the RBA’s target range. Many market analysts are predicting inflation figures to increase from here, after having factored in the deflationary impact of fuel prices.
Iron ore has impressed over the last few sessions, gaining USD7.50 since last week and an increase of 26% since it hit its 10-year low of USD47.08 earlier in the month. These gains are attributed to stimulus from China, with China’s central bank cutting interest rates, reducing the amount of cash that banks must keep in their reserves and relaxing rules on home purchases. Some commentators are now citing that the commodity has entered a bull market following five straight losing quarters to March and that prices may average $60-$70 over the year.
In currencies last week the Australian dollar was relatively flat, despite the CPI release. Our dollar finished the week worth 78.40 US cents, up from 78.24 US cents.
Yields on the other hand increased moderately with 5 year government bonds increasing by 10 basis points to 2.065% and 10 years up 15 basis points to 2.534%.
Flows
We traded heavily in the inflation linked space last week after CPI figures were released. The Royal Women’s Hospital inflation linked annuity bonds (IAB), which became available in small parcels, dominated this space. We have good supply in this name in both the annuity and nominal fixed rate bond with indicative offers as follows:
- RWH-IAB--30Jun33 5.50%
- RWH-6.2%-26Mar17call 5.94% (assuming 2017 call)
We also have very good supply in the Civic Nexus and Melbourne Convention Centre IABs which are indicatively offered as follows:
- CIVICNEXUS-IAB-0%-15Sep32 4.72%
- MPC-IAB-0%-31Dec33 4.71%
Last week, Sydney Airport issued a USD500m 2025 fixed rate bond at 3.375% or Australian Treasuries +1.52%. It has since rallied and illustrates the value in the ever popular Sydney Airport AUD inflation linked bonds (ILB) which are indicatively offered as follows:
- SYDAIR-ILB-3.76%-20Nov20 5.00%
- SYDAIR-ILB-3.12%-20Nov30 5.30%
Fortescue successful with a $2.3bn, 9.75% secured bond issue
Last Thursday, Fortescue announced the successful completion of a new US high yield bond offer, which will be used to pay out its earlier dated bonds. The bonds were issued at a yield of 10.25% but have since rallied to the 8-9% region. Please click here for full details of the transaction. FMG bonds are indicatively offered at the following buy/sell pricing:
- FMG Resources 01/04/2017 $102.75/104.75
- FMG Resources 01/11/2019 $88.00/90.00
- FMG Resources 01/04/2022 $76.75/78.75
Newcrest delivers a strong March quarterly report
Overall a positive result for Newcrest: the company has increased gold production, upgraded its full year copper production outlook, reduced its capital expenditure forecast and indicated costs were likely to be at the lower end of its previous guidance range. Please click here for the full results summary. Newcrest bonds are indicatively offered as follows:
- Newcrest Finance Pty Ltd 15/11/2021 3.97%
- Newcrest Finance Pty Ltd 01/10/2022 4.36%
- Newcrest Finance Pty Ltd 15/11/2041 5.97%
Dicker Data 1Q15 - Performance on track with solid outlook
Results were in line with the forecasts detailed in the initial research and the company reconfirmed it is confident of $1bn plus in revenue for the full year to Dec 2015. Please click here for the full results summary. Dicker Data bonds are indicatively offered at 6.41% YTM.
All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.