ABE Weekly 02/12/2020

Market Update  

 

You are the master of your fate and captain of your soul 

You must hand it to Trump, he’s still not giving up on his re-election dream but hes allies are quickly falling by the wayside. Either way, the financial markets seem to be taking it in their stride. I think people will be glad to see the end of 2020 and just making it across the finish line. We can only hope COVID will slowly start to fade as a primary source of investor sentiment and things will start to get back to normal. A lot will hinge on whether a vaccine is found. And the timing of this changes daily but the sense is they are close. 

 

Pfizer and BioNTech, two pharmaceutical firms, announced that their vaccine against covid-19 is more than 90% effective, according to early results from trials. The high success rate raised hopes of a quicker return to normality than previously expected. Other pharmaceutical firms are also working on vaccines and are expected to make announcements in the coming weeks. Current projections suggest 50m doses of the Pfizer-BioNTech vaccine will be available in 2020, rising to 1.3bn the following year. On the day of the announcement, Pfizer’s and BioNTech’s share prices surged 8% and 14%, respectively. 

 

ABE’s Pallas Capital Note bookbuild is gathering momentum. Aside from new investors most of our current investors are either rolling existing positions into Pallas or adding to portfolios. Please refer to the link for some background on the offer and rationale for being a qualified investment`https://www.fixedincomenews.com.au/pallas-capital-high-yield-bond-paying-7-5p-a/ and to apply https://www.bondexchange.com.au/products/pallas-capital/ 

We have weighed up the pros and cons of the Pallas offer, and we are very comfortable with the investment metrics. We still believe investors remain far too overweight equities compared to other asset classes and to some extent are still in the dark with regards to the benefits of fixed income. Bank stocks, once the staple of income generation, are now not as reliable as they once were. Dividend cuts and heightened market volatility only strengthen the case for investments like Pallas.  

A resurgence in COVID cases has once again tipped the US economy onto the back foot and seen a fall in US consumer confidence. This in turn has seen longer-term US Treasury bond yields rise with the 10-year Treasury bond yield up 3bps to 0.88% and the 30-year yield up by 6bps to 1.61%. The 2-year yield sits unchanged at 0.16%. This continues to emphasize just how desperate people are for yield which makes the Pallas Bond Offer incredible value at a yield of 7.5%. 

Despite the US experience the situation back home continues to improve with a strong bounce back in consumer confidence as per the chart below, this is great timing just ahead of the holidays in what has been a very challenging year. 

Confidence Gain