ABE Weekly 28/10/2020

Market Update  

 

AUSTRALIAN BOND EXCHANGE LAUNCHES NEW ENHANCED YIELD NOTE – PALLAS CAPITAL 7.5% 2024 

 

This week’s highlight is the launch of a new issue by Pallas Capital of a 7.5% Fixed Rate Note maturing in 2024 with ABE as lead manager. The initial deal is set to raise $30m and quite possibly based on demand be increased to $50m. The Note is secured by residential first mortgages on prime real estate in both Sydney and Melbourne and has a first loss provision of 5% guaranteed by the issuer. We expect the issue to be well received by the market given the reputation of the business and what is an attractive yield…the issue at this stage is only available to wholesale investors… If you wish to apply, please contact your advisor or ABE directly using support@bondexchange.com.au 

 

Seems all things COVID have settled down or at least better than they were, which is a breath of fresh air – pardon the pun for all those Victorians that have essentially been under house arrest for the last 5 months. Victora will officially come out of lockdown at 11.59pm on Oct 27, 2020 and hopefully the economy and everything else will slowly start getting back to normal. 

 

In terms of economic news Australia is gearing up for the RBA’s decision on rates next Tuesday Nov 3 coincidentally the same day as The Melbourne Cup. Bill Evans from Westpac has been very clear on his view that the official cash rate will drop from 25bps to 10bps. As much as we would like it’s unlikely this token cut will do much to further stimulate the economy. We think we are well and truly past the point of diminishing marginal returns but there is little else the Government can do. In the context of a once in a one-hundred-year event the current administration has probably done very well by global standards. Current economic forecasts project the Australian economy to return to growth in 2021 showcasing just how resilient it is! 

 

Turns out Nov 3 is going to be a busy day. RBA decision, Melbourne Cup and who can forget the US Election. Price action on financial markets has been muted suggesting a win by either candidate will have little or no impact. Whoever wins the election has a huge job ahead of them in resuscitating the US economy. The chart below shows Biden ahead in the polls, but we saw the same with Clinton the last election. Will Trump pull a rabbit of his hat. The risk going forward is a possible second wave not just in the US but globally, so complacency is not really an option.