Tuesday 05 February 2019 by Facilitation Sales commentary

Trading Desk - 5 February 2019

RBA keeps rates on hold, investors look to add duration, subdebt the preferred reinvestment for the Bendigo and Adelaide 2019 call proceeds

  • With rates looking on hold in both Australia and the US next year, investors continue to extend duration.The most actively traded longer dated bonds were WBC 2026 call in USD and Pacific National 2027 in AUD. Both are available to wholesale investors only at an indicative yield to call of 4.35%pa and indicative yield to maturity (YTM) of 4.35%pa respectively.Pacific National is rated one notch lower in rating and a year longer, with WBC 2026 call offering attractive relative value for investors.
  • With the recent rally in iron ore, FMG 2024 USD has attracted renewed interest.Investors are familiar with the name and the yield is attractive.It’s offered to wholesale investors at an indicative YTM of 4.93%pa.
  • With many clients still reinvesting their BENAU 2019 call proceeds, the bank’s Tier 2 bonds have remained well bid.AMP 2023 call and the longer dated BENAU 2023 call notes have been the top picks for these funds.They are available to wholesale investors at indicative margins of BBSW+2.32%pa and BBSW+1.83%pa respectively.
  • While many of the USD bonds have increased in price with the January rally, one that has lagged is Nufarm 2026.We believe it continues to offer an attractive yield and opportunity, where other USD corporates are tighter in price.Nufarm is available to wholesale investors at an indicative yield of 6.58%pa.

Economic wrap

  • Strong US jobs data was released for January, with an additional 304,000 jobs.The unemployment rate jumped to 4.00%, however this was caused by the longest ever government shutdown.
  • Asian markets have been quieter this week and struggled for direction, curtailed by the Luna New Year holidays.
  • The Banking Royal Commission final report was handed down earlier in the week, where 76 recommendations were included.The biggest findings were in relation to conflicts between duty and interest.
  • The RBA met for the first time this year, where no rate change was delivered, as expected.  The accompanying statement was dovish in tone, building a case for rates to remain on hold this year. The market is now pricing in a 70% chance of a cut other the next 12 months, at the last Board meeting in December that probability was zero.