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Tuesday 29 January 2019 by Jessica Rusit Sales commentary

From the trading desk - 29 January 2019

Markets reverted to a risk on mentality this week after the US government reopened. AMP and Pacific National remain key targets, retail investors bought limited supply of inflation linked bonds

AUD & USD

Small parcels of inflation linked bonds were available over the week and they were snapped up quickly by retail investors.Sydney Airport 2030 ILB and the Jem NSW Schools 2035 IAB were offered, and remain in hot demand.They were offered at indicative yield to maturities of 4.88%pa* and 4.87%pa*, respectively. *Please note these yields include a 2.50% inflation assumption.
The AMP 2023 call floating rate note still remains one of the most traded bonds for wholesale clients, and offers one of the more attractive returns at an indicative margin of BBSW+2.34%.The bond remains popular also for its investment grade (IG) rating and FRN exposure.
In the USD space, IAMGOLD 2025 and FMG 2024 bonds were added to portfolios as outright buys.The bonds are available at indicative yields to maturity at 7.03%pa and 5.62%pa.
To add portfolio protection in uncertain times, investors have been adding longer dated IG bonds in AUD.The Pacific National 2027 fixed coupon bond is one such example, offering an indicative yield to maturity of 4.39%pa.

Economic wrap

Markets started the week with a risk on rally, after the US partial government shutdown was temporarily reopened for three weeks while talks between the Democrats and Republicans resumed over border funding.
UK Prime Minster, Theresa May will seek backing for her Brexit deal in a vote on Tuesday, as the March 29 deadline to leave the EU approaches.
In Australia the unemployment rate fell to 5.00% on the December jobs figure, with the participation rate falling to 65.6%.Part time employment was stronger but full time employment fell by 3,000 jobs.
Weaker domestic inflation data for December quarter is expected mid-week with a headline yearly rate forecast at 1.7%.If the forecast is accurate, the figure moves further away from the RBA target band of 2-3% and could bolster the need for a rate cut.

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Jessica Rusit

Jessica Rusit has over 12 years of experience in financial markets, and over 9 years working in fixed income markets.

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