Credit updates:
- Appetite for corporate bonds in the wholesale market has been affected by a volatile week for bank funding costs which affects appetite for all assets including bonds.
- The Retail corporate bond market, however, remained immune and generally in demand with some recent issuance being well received.
- Axsesstoday launched a simple corporate bond (ASX listed) which priced at tighter levels than existing OTC issues despite ranking lower in the capital structure. Investors in the OTC market can clearly capture the extra yield on offer by having an account with the ABX
- NextDC continues to receive enthusiastic support from the debt markets with a new $300m 4yr issue. As a relative value proposition, we like the previous issue 2021 bond which is yielding 5.42% for 3yrs. Call your ABX salesperson to discuss.
Macro comment:
The following factors were impacting bond pricing this week:
- Benchmark US 10yr treasury yields are relatively steady 2.83% as headlines of trade wars and political instability in the UK help maintain a solid reason to own bonds.
- In Australia short-term funding pressures for banks have caused smaller lenders to increase mortgage rates. Earlier this week even Macquarie bank was forced to raise rates. The path is now clear for the majors to follow suit.
ABX Colour:
The start of the new financial year and new month saw the Reverse Bank of Australia (RBA) leave interest rates unchanged expectedly. Falling house prices in many states and tougher lending policies coupled with households so heavily indebted the effects of these hikes will be watched closely by the RBA and will likely remove any thoughts of an official rate hike in the next 18 months.
With only a small chance of an interest rate hike in the near future, bond prices will stay stable and shows if you
get 5%-5.5% from your fixed income allocation, you’re doing extremely well.
Focus on AUD:
We wake up this morning to the news that the U.S. is readying new tariffs on another $200 billion of Chinese goods, both deepening the dispute with China that sends a message to European trading partners that the U.S won’t back away from trade fights.
The AUD/USD is sharply lower losing sight of the 75 handles and threatening to break .7400 on the back of the headlines.
Fresh trade war angst will do little to help the Aussie as the risk-off mood takes hold and any missed readings for macro indicators could see the AUD/USD in the 73s.
AUD: 1 month intra-day graph
From the Swiss desk
The Federer express will be once again shine on the weekend and win another Wimbledon Crown. (If so, all my clients who mentioned Wimbledon will receive a free trade!! MM)
Call your ABX representative on +61 2 8076 9343 to discuss out how this will affect your investments.
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Weekly commentary and direct bond investments ABX weekly 11/07/18
Go the Fed express!
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