Monday 23 May 2016 by Week in review

Trading Desk

S&P reaffirm Adani Abbot Point Terminal as investment grade, domestic rates rebound from low levels, and the prospect of two further rate cuts in Australia weigh on the currency

Economic Wrap

Last week showed an unchanged unemployment rate of 5.7% for the seasonally adjusted number. This was slightly better than the 5.8% consensus. The AUD continues to trade below 0.7300 versus the USD, and the prospect of two further rate cuts this year in Australia and another rate hike in the US continue to weigh on the currency.

US government bonds are higher in yield on the week with the 10 year yield at 1.835%. The range on the US benchmark bonds has shifted between 1.70% and 2.00% over the last three months.

Other news:

  • US existing home sales rose 1.7% in April, which was a little higher than expected. Stocks closed up with the Dow Jones up 0.38% and the broader S&P up 0.6%.
  • The US is on the verge of meeting most of the economic conditions for an interest rate rise in June, according to Eric Rosengren, president of the Federal Reserve Bank of Boston
  • G7 leaders meet in Japan on Thursday to discuss global growth and geopolitical risks
  • The Guardian newspaper says Brexit will remain an ongoing issue even if Britain votes to stay in the EU

Credit indices spreads are broadly unchanged over the last week with the US Investment Grade Index (IG) finishing Friday at 83.75 basis points (bps), 0.5bps wider over the week. The US High Yield Index (HY) finished 5bps wider for the week at 458bps.

Domestic interest rates are higher over the last week, with the AUD 3 and 10 year swap rates currently at 1.85% and 2.42% respectively. Note though that these are rebounding from low levels. The 10 year Australian government bond is yielding 2.29%, close to its 2.229% record low reached on 16 May. The Australian iTraxx index is at 132bps, having tightened 3bps over the last week.


S&P reaffirmed Adani Abbot Point as Investment Grade (IG), meaning the ‘crossover’ credit scenario continues, whereby Adani is IG with one ratings agency and sub IG with another. More details are available in this note. We have seen more buying interest in both the 2018 and 2020 AUD fixed rate AUD lines immediately following the announcement, with bonds offered slightly higher. We expect some volatility in pricing and supply as the market digests the news.

Sydney Airport reported total passengers were up 7% year over year in April, with international and domestic passengers up 10.6% and 5.2% yoy respectively. We have seen some increased interest in both the 2020 and 2030 inflation linked bonds, with good supply in both lines.

In FIIG originated deals, last week CML tapped its existing 2022 fixed coupon bond, to raise another $15m. The deal was favourably priced with investors eager to bid into the new offer. Another deal attracting a lot of attention is the Impact Homes 2021 fixed rate amortising bond. With their recent positive results update, clients have identified value and are taking advantage of very good supply available in the name.