Credit updates:
- Retail corporate bonds have continued to be in demand highlighting their relative immunity to global equity market fluctuations.
- Primary issuance of corporate bonds remains light, adding to the natural bid for bonds in the secondary market.
- NextDC have launched a new 3.9yr bond paying around the 6% area (subject to demand). NextDC has been an active issuer in the unrated bond market and have developed a loyal investor base so we expect this deal to be well subscribed. It’s worth highlighting that we have been active in the June-2021(2.9yr) bonds which still offer attractive yields of 5.4% for a year shorter maturity than the new deal.
Macro comment:
The following factors were impacting bond pricing this week:
- Benchmark US 10yr treasury yields are 5bp lower than a week ago at 2.83% as money has rotated from risky equity markets in the safety of fixed income
- In Australia short term funding pressures for banks have eased which has seen buying come back into shorter dated bonds in the wholesale market. However domestic lenders look increasingly likely to raise lending rates, reducing the need of the RBA to hike rate. Increasingly some market commentators are speculating that the next move in official interest rates may be down, not up.
ABX Colour:
With the start of the new financial new year ASIC has come out with some startling statistics on self-managed superfunds (SMSFs). With more onerous on diversification and transparency in people’s investments and with their best interest in mind regarding managed fees as well as inflation.
Switching out of term deposits into direct bonds is a safe way to maintain your fixed income allocation while getting higher yields to overcome inflation. Have a portion of your portfolio include inflation linked funds to hedge against inflation pressures. Call your ABX representative on +61 2 8076 9343 to secure your bonds today.
Focus on AUD:
Yesterday the RBA interest rate decision came out as expected at 1.5% with the statement noting that “the Australian dollar has depreciated a little” though the reference to “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation” was dropped suggesting the RBA is happy with the recent drop and less concerned with upside risks for the $A.
The Aussie was unmoved by the RBA statement but found selling pressure overnight to tag a 14 month low Of 0.7310. It has recovered some market position after some risk appetite saw the USD take a breather. Today we have Retail Sales and Trade Balance figures. It is expected that if bullish numbers today can’t recapture the key 0.7400 level decisively we will see further downside for the Aussie.
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 4/07/18
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