ABE Weekly 14/10/2020

Market Update  

 

“Be fearful when others are greedy and greedy when others are fearful” – Warren Buffet 

 

Consumer sentiment in Australia surged 18% in September, coming off an extremely weak 79.5 read in August when Victoria moved back into lockdown and consumers were clearly fearing similar outbreaks in other states. On a positive note Westpac Chief Economist Bill Evans lifted GDP forecasts in 2021 from 2.5% to 2.8% and in 2022 from 2.7% to 3.5%. 

 

In other news, looks like COVID has taken a backseat to the US election to be held November 3. Biden is still ahead in the polls but based on prior experience anything is possible. One way or the other the future continues to look very uncertain and for investors it’s a lot to take in.  

 

Investors globally are still coming to terms with this new low interest rate reality and the overall impact on livelihoods and living standards. When one sees charts like the one below it puts into perspective just how unprecedented the current situation is – the current yield on the Italian 10YR Govt Bond at 68bp is the lowest it’s ever been since modern Italy became a country in 1861. 

 

This follows comments this week by ECB economist, Philip Lane, suggesting that central banks may take further action. And by this he means further QE using the ECB’s pandemic emergency purchase program. Truth be told we are likely to see more money printed across the globe to stimulate growth. Domestically you can pretty much count on a rate cut of 10-15bps by years end which means Term Deposits will like drop to approx. 50-100bps. 

 

It sounds a bit like a broken record but with these facts staring us in the face it is hard to rationalise why you wouldn’t take advantage of some of the higher yielding corporate bonds still available. 

Italian 10yr yield since 1310

 

In other news this week, NEXTDC announced it had entered into a new Syndicated Facility Agreement to restructure existing debt commitments including Unsecured Notes on issue to provide a significant improvement in NEXTDC’s WACD and duration profile. The company stated that it intends to use these funds to redeem all the outstanding bonds on issue at the next interest payment date of 9 December 2020.  

 

ABX is about to formally launch the issue of the Pallas Trust 7.5% 2024 Note which has been widely anticipated by our investor base. At this stage the offer is available to wholesale investors only, but we are more than happy to provide more information on this and other new issues in the pipeline. The deal will be $30m in size initially with the potential to upsize based on demand. 

 

We are still active in NAOS Fixed 2024 at 4.7% and CNI Fixed 2023 at 5.1% indicatively.