Australian Bond Exchange

ABX weekly 28/11/2018

28th November 2018

Market update 

While there is a risk-off tone given the equity market selloff, current trade uncertainties and Fed outcomes we expect credit spreads will widen somewhat but domestically we’ll remain tighter than the US. Australia hasn’t seen the borrowing that other countries have. We agree with a Moody’s report last week that “financial leverage for Australian corporates would remain steady. Moderate levels of debt are maturing in the next 18 months as a percentage of gross total debt. High levels of cash on hand will continue to support liquidity for many issuers”.  The domestic market is very conservative at the moment i.e. we haven’t seen any junk bond issues locally, unlike some of the tricks playing out overseas. Our view is the market is under supplied in high yield credit and we are seeing good take up in new issues.

On the issuances front, there have a been a few RMBS launched this week. But seeing how analysts are concerned on further property downturn these “AAA” assets still wouldn’t be my pick. Giving more support there isn’t enough supply in the bond space and investors will pick up what they can get.

European Desk

The Brexit deal is now entering its final stages of approval. The path between now and 29 March 2019 is likely to be volatile. One strategy nearly deployed two weeks ago was a vote of confidence (by Conservative MPs) in Theresa May’s leadership. In the end, the required 48 letters to call a vote failed to materialise, but this number could be hit at any time. We are now fairly confident that the vote on 11 December will take place without a preceding leadership vote. In either case, May is almost certain to be in power when the current deal gets put to a vote on 11 December. If a confidence vote were called in the next two weeks and she lost, a vote on a revised deal is possible.

This obviously has flow-on effects across the globe with even US President Trump mention it could affect US-UK trade. The silver lining in all this volatility has how stable the Australian high-yield bond space has done, mainly due to the low supply.


ABX Colour

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Market Movements

ASSET CURRENT 1 Week change
Aus Cash Rate 1.50 0.00
3M BBSW 1.94 0.00
Aus 3yr Gov 2.13 0.01
Aus 3yr Corp 2.49 0.02
Aus 3yr HY 5.36 0.02
US 10yr bonds 3.04 -0.02
AUD 0.72 -0.01
S&P 200 5716 -14

ABX Bonds of interest

Name Issuer Type Maturity Coupon
QMS Media Fixed 2022s QMS MEDIA LTD FIXED 21-Nov-22 7.00%
NextDC Fixed 2022s NEXTDC LTD FIXED 9-Jun-22 6.00%
Dicker Data FRN 2020s DICKER DATA LTD FLOATING 26-Mar-20 3M BBSW +4.4%
Centuria Fixed 2021s CENTURIA CAPITAL 2 FUND FIXED 21-Apr-21 7.00%
Centuria FRN 2021s CENTURIA CAPITAL 2 FUND FLOATING 21-Apr-21 3M BBSW +4.5%
NextDC Fixed 2021s NEXTDC LTD FIXED 9-Jun-21 6.25%

Figure 1 (Source: ABX)

There has been significant demand in the above names. We continue to build interest in these names and others.