Monday 23 April 2018 by Week in review

From the trading desk

Trump blames OPEC for ‘artificially high’ oil prices, Bristow the standout USD high yield bond, Rackspace continues to be a popular trade with sub investment grade Dean Foods and JC Penney offering high yields, FRNs on demand to minimise interest rate risk exposure, investor interest in Adani’s shortening maturity and FIIG originated Lucas TCS a great sector diversifier. If you own Capitol Health bonds, remember, they are being called on 10 May

What’s trading


  • Demand for floating rate notes has been popular recently as investors look to minimise interest rate risk exposure. The following have been popular purchases:
    • Subordinated bank debt
      • IAG BBSW+2.10% 2024c at an indicative YTW of 4.35%pa
      • Challenger BBSW+2.10% 2022c at an indicative YTW 4.12%pa
      • DBS BBSW+1.58% 2023c at an indicative YTW 3.84%pa
    • Corporate debt
      • Asciano BBSW+2.60% 2027 at an indicative YTW of 4.68%pa
    • AUD HY
      • Dicker Data BBSW+4.40% 2020 at an indicative YTW of 4.95%pa
  • Adani Abbott Point Terminal (Adani) on demand with only two years left until maturity, offering a yield to worst of 5.25%pa. Adani also recently issued a USD denominated bond rated BBB- by S&P maturing in 2022. Investors can purchase the bond at an indicative yield to worst of 5.46%pa
  • Investors took full advantage of some supply becoming available in the FIIG originated Lucas Total Contract Solutions bond that offers great diversification into the industrials sector. The bond has an indicative yield to worst of 6.50%pa and a small parcel remains.


  • Industrial aviation services company Bristow Group (Bristow) was the standout credit in the USD high yield space last week. Bristow shares climbed to their highest point in a month, prompting renewed interest in the name. Clients who jumped on the trade early were lucky to get stock given the relatively small issue size of USD350m for the March 2023 fixed rate senior bond (rated B+ by S&P). Supply started to dry up later in the week as many trading desks were left short. Interest in Bristow remains strong and supply is still very tight. The bonds are indicatively offered at a yield of 7.34%pa, however clients may experience longer than average wait times for supply to become available
  • Demand for data services provider Rackspace Hosting has been consistent for the past three weeks. The single B rated (S&P) November 2024 fixed rate senior bond has been a major focus for clients, since price weakness in late March provided an attractive entry point for investors looking to add USD exposure. Supply is still available at an indicative yield of 7.96%pa

Economic wrap

Last week, regional Fed Presidents highlighted concerns about trade tariffs, but were broadly optimistic on the outlook for the US economy.

Commodities continue to perform with oil benefitting from decreasing inventory. Comments by Trump, blaming OPEC for ‘artificially high prices’ had little impact with the benchmark West Texas Intermediate (WTI) contract closing above USD68.00.

Inflation numbers across Europe, the UK, the US and New Zealand were generally lower than expectations, although there are some positives occurring, such as the wage rise for German public sector workers.

Other news – AUD high yield available

FIIG Research has reiterated its Market Perform recommendation on Merredin Energy with 1H18 operational and financial performance in line with its expectations.

Dean Foods and JC Penney are getting some interest in the US sub investment grade space for clients who are searching for higher yields and can accept greater volatility in price and returns. Dean Foods is a BB- rated bond in the food and beverage industry, available below the par $100.00 price and yielding circa 6.69%pa. US retailer JC Penney has two bonds available, including a senior secured BB- security, also trading below the par $100.00 price and yielding above 6.00%pa.

As a reminder, Capitol Health announced they are calling their fixed rate bonds on 10 May 2018 at a price of $103.00 plus accrued interest.

There is some profit taking occurring in the Ensco March 2025 bond and the Noble January 2024 bond as the securities benefit from higher oil prices.

Floating rate notes continue to be in demand with 1 and 3 month BBSW index sitting at recent highs. The Asciano and IAG securities have been the main corporate beneficiaries, although supply is becoming tougher in these names. Highly rated Residential Mortgage Backed Securities have not shown the same spread compression as comparable investment grade corporate bonds, so continue to find favour with clients comfortable with some extra complexity.