Australian Bond Exchange

ABX Weekly 01/07/2020

The major headline this week belongs once again to the renewed anxiety of the resurging number of the virus outbreak in Melbourne with news of Coles and Woolworths having reinstated purchase limits on toilet paper and paper towels across Australia as panic buying spreads to other states.

On top of this, we had Qantas announcing its much anticipated major restructuring with thousands of people losing their jobs which of course has a major negative impact on consumer confidence and banks are reporting record cash holdings in client’s bank accounts as everyone is worrying about what is going to happen in September when the government is planning to roll back some of the emergency packages.  Prime Minister Scott Morrison once again reminded and reassured us that ‘‘We can’t expect there to be any cases. That is not success. Success is that we live alongside the virus, deal with the challenges that come along, keep opening the economy and we keep getting people back into jobs.’’

Mr Morrison also once again confirmed that there would be new government assistance packages for certain industry sectors which, due to continuing restrictions, would not rebound as quickly as others beyond September when JobKeeper and other government assistance ceases. Furthermore, Dr Lowe the RBA Governor was also speaking at the same meeting on Friday afternoon organised by Prime Minister Scott Morrison and Treasurer Josh Frydenberg to discuss with banks the need to be flexible with $226 billion in loan deferrals that are also scheduled to end on September 30.

Despite all this worrying news, the bond markets were very calm and there was very little movement in our Government bond yields with the 10y bond trading in a narrow range once again. During the week we saw the new, very long-dated 2030 senior secured 4.5%  bond from Brisbane Airport start trading at a premium to its issue price (trading at a yield of around 4%) which further highlights the fact that the bond market is functioning well and the financing channels are open for corporates to raise or refinance their balance sheets.

Internationally of course the big worry currently is that the cases in the US are once again strongly increasing setting new daily records. The Governor of Texas for example halted the reopening as COVID-19 infections and hospitalisations strongly surged. Texas, which has pushed to reopen devastated economies shut in the face of the pandemic, had one of the biggest jumps in new cases reporting more than 6000 in a single day on Monday.

In some policy news from China, its central bank is following the global trend of QE and the bank continues to inject liquidity in a statement that said it will implement new monetary tools to make sure liquidity reaches the real economy. The People’s Bank of China said it will increase the proportion of smaller company, credit and manufacturing loans, and continue to lower lending rates, while reiterating that it will keep the yuan stable.