Australian Bond Exchange Weekly Newsletter

17 June 2022

“Strive for perfection in everything you do.”

  • Henry Royce

ABEWeekly 17-06-22

Key Points

  • New Rolls-Royce 5.5% 3year Australian Dollar Note
  • Consumer confidence is falling
  • Backlog in processing working visas
  • Fed increase by 75bps
  • Surprised 50bps move by the Swiss National Bank
Australia

We are pleased to announce the launch of our latest Bond Lined Security for Rolls Royce PLC with a fixed coupon of 5.5% p.a. running until February 2026. UK listed Rolls Royce (London Stock Exchange: RR) is a global household name and a member of the FTSE 100 index with a market capitalisation of close to GBP8bn. The group operates through its three core divisions, namely civil aerospace, defence and power systems. The group posted GBP10.9bn revenues in 2021 split geographically between North America (35%), Europe (34%), Asia (18%), Middle East (8%). Rolls is also embracing the challenge of moving into the emission free world and a recent example is the opening of a solar park in southern Germany.

We are able once again to tap the overseas market and are excited to offer this Note to retail and wholesale investors with a minimum of $10,000 per bond. This Note will be also available on IRESS, Xplan and Australian Money Market and these platforms, as usual, will also help to facilitate the secondary trading. The order book not surprisingly is filling up quickly and we expect to close the offer towards the end of next week.

Consumer confidence is taking another dive with the June sentiment falling 4.5% (to 86.4) from the prior month, capping a seven-month consecutive decline. Rising inflation combined with the energy crisis has driven the Westpac’s consumer confidence sentiment index to its lowest level since August 2020. Westpac’s Chief Economist Bill Evans commented “Over 46-year history of the survey, we have only seen Index reads at or below this level during major economic dislocations!” Prior record lows include Covid, the GFC and the 1990’s recession. “Those last three episodes were associated with high inflation, rising interest rates and a contracting economy – a mix that may be threatening to repeat” according to Evans.

Skill shortages is clearly a major issue for the economy currently and the skilled migration program is vital to help ease this situation. Recent reports, however, suggests that there is a massive backlog and Consulting firm Deloitte Australia reported this week that there is a backlog of hundreds of sponsored professionals who are waiting for their working visas to be processed. Apparently, the Department of Home Affairs is now taking up to 3 months to process a sponsored skilled visa. Normally it would have taken 8 days before the pandemic but is currently sitting at 73 days and the processing times are likely to get worse. One can only hope that the new Federal government is finding a quick solution to rectify this situation.

Global

US headline inflation jumped to 8.6% which caused major volatility in the global financial markets and caught most forecasters on the wrong food. However, the increase in cash rates of 75bps by the Fed a couple of days ago somehow has calmed everyone’s’ nerves a little but clearly the voices of a possible upcoming recession are getting louder. The benchmark short-term rates are now set in the range between 1.5% to 1.75% with policymakers expecting their key rate to reach a range of 3.25% by the years end. Borrowing costs have already risen sharply across the US economy with the average 30-year fixed mortgage topping 6%, its highest level since before the 2008 financial crisis and almost double the rate just six months ago.

The Swiss National Bank also surprised the market last night by raising interest rates by 50bps from minus 0.75% to minus 0.25% (hurray they are finally getting closer to rates above zero!!). This move was surprising as the ECB so far has not moved its rates and the Swiss Franc has strengthened considerably on the back of this. Most Swiss market commentators congratulated the SNB for this courageous move which should help cool off the very strong Swiss economy. There is finally some hope for Swiss savers; they are no longer being charged interest for their hard-earned savings from their Swiss bankers.

 

We currently have one of the most diversified bond portfolios you can find in Australia.

 

Contact us if you have any questions or would like any assistance.

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