Monday 21 March 2016 by Week in review

Trading Desk – Strong buying in Royal Women’s Hospital bond

Last week, Royal Women’s Hospital nominal bond was popular amongst clients as we were able to source good supply at attractive rates. Overseas, the Fed realigned their forecast to only one more rate hike in 2016. This news saw the AUD rise and held at 75 US cents. There was also a range of rating actions across the week in a number of bonds that we trade

Economic Wrap

The Fed statement from the US Federal Open Market Committee (FOMC) caught up with market expectations, realigning their forecast of rate movements to only one more hike in 2016.

This helped the Australian dollar to rise and hold above 75 US cents on interest rate differentials as well as further stability in commodity prices.

Regarding Brexit, David Cameron challenged Boris Johnson’s views on a potential Brexit, accusing London’s Mayor of ’literally making it up’ as he goes along.

US government bonds rallied, with the 10 year at 1.875%. We still expect yields to break above 2.00% if markets continue their more positive theme.  

Other news

Overseas, both credit and equity markets rallied, as a positive reaction to (FOMC) news.

The Deutsche Bourse has bid for the London Stock Exchange in a move towards further rationalisation of Exchanges. 

US firms (S&P Constituents) are likely to repurchase close to the record amount of stock ever purchased this quarter, in a move widely seen as the reason for the recent rebound in equities.

Credit indices spreads were broadly unchanged over the last week as the US Investment Grade Index (IG) finished Friday up 1.5 basis points (bps) at 85 (up 3bps on the week) and the US High Yield Index (HY) was up 3bps on the day at 431.25 (narrowing 5bps on the week). It has been a much calmer week with lower volatility in markets.

Domestic market

Domestic interest rates are 5-6bps lower over the last week, with the AUD 3 and 10 year swap rates currently at 2.17% and 2.71% respectively. The Australian iTraxx is around 126bps (or 1.26%, for this index of 25 Australian Investment Grade names). Our iTraxx narrowed slightly throughout the week in line with the generally calmer environment and was further bolstered by the FOMC’s rebasing of rate hike expectations.

Moody’s downgraded both Adani Abbot Point and Dalrymple Bay Coal Terminals to sub investment grade. S&P has not downgraded these entities and we are not convinced they will definitely follow suit.

For our most recent research update on Adani, click here.    


In trading last week, AUD infrastructure received attention. The highlight was in the Royal Women’s Hospital nominal bond with a first call date in 2017. We came into supply which was well received by clients, who were buyers of a total of around $8m in the line. We remain able to source bonds, albeit at a slight premium after our cheaper supply is gone.

The Praeco 2020 nominal bond was the other line we saw buying in. Although supply was not as abundant compared to RWH, we remain able to source further bonds, however pricing is expected to tighten by around 15bps.

In USD trading, FMG was downgraded by Moody’s last week, but prices largely were not impacted. This saw mixed flow in the name, but generally better selling in the unsecured lines, versus buying in the secured 2022 line. In more rating action driven trading, we saw elevated prices and subsequent profit taking in Newcrest, which had its rating affirmed by Moody’s.  

As a reminder, the IG index is comprised of the Credit Default Swaps of 125 equally weighted names whereas the HY is comprised of 100 non-investment grade names. Changes in them are reflected in prices of securities of varying credit quality.