Tuesday 16 September 2014 by FIIG Research Legacy

From the Trading Desk (16/09/14)

Yield direction and volatility

Economic data this week focussed on the release of employment numbers. Australia added 121,000 new jobs in August, higher than the 15,000 forecast, which sent bond yields higher over the week.  The number of full time jobs rose by 14,300, and part-time employment jumped by 106,700, the Australian Bureau of Statistics results showed. The jobless rate fell to 6.1% from 6.4%.

Meanwhile in the US, jobless claims rose by 11,000 last week, the highest level since June, to a seasonally adjusted 315,000 for the first week of September. This was above forecasts of 300,000.   

The 5 year and 10 year benchmark swap rates both closed 10 basis points (bps) higher over the week, closing at 3.46% and 4.01% respectively. The 5 year and 10 year Commonwealth government yields were up 12-16 bps for the week, closing at 3.04% and 3.61%.

New Issuer – 360 Capital Group

FIIG reached a new milestone last week by originating its largest unrated new issue yet.. The $75 million offering was a fixed rate bond for the ASX-listed 360 Capital Group (ASX: TGP), which pays 6.90% semi-annually.  The bond has a legal maturity of September 2019. 360 Capital Group is an Australian property funds manager and co-investor in its nine investment vehicles holding 33 industrial, office and retail properties across Australia valued at more than $1 billion.

FIIG’s issue from the prior week, Coffey September 2019 floating rate note (FRN), last week traded in the secondary market and was added to the DirectBonds list. The bond is available to wholesale clients only and in minimum parcel sizes of $10,000.  There was some stock available, which was snapped up the moment the secondary market opened.

Other credit margins and trading activity

Inflation linked trading was dominated by the Sydney Airport capital index bonds (CIBs) last week as good two way flow was recorded in both the 2020 and 2030 issues. Supply of the 2020’s saw some clients choose to shorten duration by switching from the longer dated 2030. Supply is still available in both securities with indicative offer yields shown below:

  • Sydney Airport Nov 2020: 5.80%
  • Sydney Airport Nov 2030: 6.33%

Index annuity bond’s (IABs) were quiet last week as investor demand favoured opportunities in the high yield fixed rate space. Supply is still available in some of our favourite IABs:

  • JEM (Southbank) 2035: 5.65%
  • MPC 2033: 5.55%
  • Plenary Justice 2030: 5.30%
  • Praeco 2020: 4.80%

Unrated high yield issues were the clear standouts last week as funds flowing into new issues freed up stock in some of our most tightly held names. G8 Education August 2019 fixed rate bond  was again our most traded security for the week as a high volume of retail bids consumed the majority of supply. G8 is still available however supply is expected to ebb now that book builds for new issuance have closed.

Similar to the G8, some of our other typically tightly held bonds saw action during the week. Decent supply remains available in the securities below (shown at indicative offer yields):

  • CBL Insurance April 2019: 6.64%
  • Cash Converters September 2018: 6.34%
  • G8 Education March 2018 (FRN): +277bps
  • Mackay Sugar April 2018: 5.80%
  • PMP Finance October 2017: 6.70%
  • Silver Chef September 2018: 6.41%


Market levels are indicative as at 15 September 2014 and subject to change based on demand and market movements.
Yields for floating rate notes are estimated as the sum of the swap rate to maturity / call and the trading margin.
Yields for capital indexed bonds and index annuity bonds are estimated as the real yield plus a 2.50% inflation assumption.

Key terms

Basis points (bps)

The basis point is commonly used for calculating changes in interest rates, equity indices and the yield of a fixed income security. The relationship between percentage changes and basis points can be summarised as follows:

Bank bill swap rate (BBSW)

A compilation and average of market rates supplied by domestic banks in regard to the specific maturities of bank bills. BBSW is calculated at ten o’clock every morning and compiled by AFMA.

The purpose of BBSW is to provide independent and transparent reference rates for the pricing and revaluation of Australian dollar derivatives and securities.
Call date

The date prior to maturity on which a callable bond may be redeemed by the issuer. If the issuer determines there is a benefit to refinancing the issue, the bond may be redeemed on the call date, at par, or at a small premium to par depending on the terms of the call option.