Tuesday 05 April 2016 by Week in review

Trading Desk - IMF Bentham issue

New IMF Bentham issue, three FIIG originated bonds become available to retail clients and credit rallies

Economic Wrap

The RBA meets tomorrow and although the cash rate is expected to stay at 2.00% all eyes will be on the accompanying RBA statement. Some commentators are suggesting that an AUD edging closer to 80 cents against the USD could provide the impetus for easing rates. Low inflation and mixed local jobs data also support the case for lower rates. 

US government bonds rallied last week, with the 10 year now yielding 1.76%. We had expected yields to break above 2.00% but Yellen’s comments have stalled the rise in US treasury yields. She said ‘developments abroad imply that meeting our objectives for employment and inflation will likely require a somewhat lower path for the federal funds rate than was anticipated in December’.  

Other news:

  • Both credit and equity markets in the US rallied on Friday, in reaction to US jobs data
  • Yellen’s speech last week had already given US markets a positive lead in what was broadly seen as a ‘dovish’ stance
  • Bank of England’s Financial Policy Committee indicated that Brexit concerns are driving up risk premia in the UK and weighing on the Pound
  • EU Headline CPI fell by 0.1%p.a, whereas German CPI for March exceeded market expectations, coming in at 0.1% (consensus 0.0%)

Credit indices spreads were lower over the last week with the US Investment Grade Index (IG) finishing Friday at its lowest for 2016 at 75.5 basis points (bps), down 8bps over the week. The US High Yield Index (HY) was 17bps tighter over the week to finish at 438.25bps.

Domestic market

Domestic interest rates are 8-10bps lower over the last week, with the AUD 3 and 10 year swap rates currently at 2.09% and 2.61% respectively. The Australian iTraxx is at 136bps (or 1.36% for this index of 25 Australian Investment Grade names). Our iTraxx narrowed 7-8bps over the week following Yellen’s speech.


We had a new transaction selling for IMF Bentham, an unrated senior secured note paying 7.40% fixed to June 2020. The deal received positive interest, particularly given the diversification advantages around the name, with the bond offering a unique industry exposure.

As is often the case with new issues, existing FIIG deals were left better offered. This fared well for clients looking to add other names, but also for retail investors, given we had three FIIG originated deals season last week and become available to retail clients. These were the Dicker Data 2020 floating rate note and both the McPherson’s 2019 floating rating note and 2021 fixed coupon bond. Supply is good in both floating lines, while we are working to secure bonds in the McPherson’s fixed bond.

In non-AUD trading, we saw some news impacting the Virgin 2019 USD bond. Following the company’s announcement that it is reviewing its capital structure, as well as it having secured a $425m loan facility, last week Air New Zealand announced that it is reviewing its ownership stake in Virgin. Following the news, S&P reviewed its outlook on Virgin from stable to negative. Until the fate of Air New Zealand’s equity stake is worked through, there will be uncertainty surrounding the credit. However, client’s still took  advantage of cheaper pricing on the bonds. We remain well placed to offer the Virgin 8.5% 2019 USD bonds at an indicative yield of around 8% per annum.

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.