Investment Strategy

New issue alert - Westpac launches Tier 2 Subordinated Bond

In this inaugural report on the performance of the Residential Mortgage Backed Securities (RMBS) sector, we review the current characteristics of a large number of RMBS where our clients have exposure.

The Solactive FIIG Australian High Yield and Non-Rated Bond TR Index is a new index that allows investors to assess performance of the AUD high yield (HY) bond market.

New DirectBond - Oasis Petroleum

2019 year to date (YTD) performance of most bond and stock markets has been strong. So it is no surprise to note that US high yield bonds have had one of the best returns since 1987.

As we kick-off the new financial year, it’s timely to look back at market conditions over the first half of 2019 and consider how best to adjust portfolios for the remainder of the year.

ANZ has announced its intention to issue an AUD denominated, floating rate, 10-year non-call 5-year (10NC5) Tier 2 subordinated note.

Banking giant, Westpac, has launched a dual tranche USD-denominated Tier 2 subordinated note. This would be the first Tier 2 issuance since APRA’s announcement that Australia’s four major banks are required to significantly increase their Tier 2 capital over the next four years.

Following the RBA’s back-to-back rate cuts at its June and July meetings, it’s time to settle into the fact that low interest rates are here to stay. With the official cash rate at a record low 1.00%, we look at strategies to optimise investor returns on fixed income portfolios.

Western Digital Corp.’s 2026 maturity USD bond is the latest addition to FIIG’s DirectBond list. Rated one notch below investment grade (IG), it offers an attractive risk-return for investors seeking USD credit exposure with yield in excess of 4.50%pa.

Fund managers have been rotating out of their equity allocations into cash and bonds, according to the BofA Merrill Lynch Global Fund Manager Survey results for June. This is largely due to a pessimistic outlook and is a timely reminder that portfolios should be well-diversified with an allocation to more defensive assets.

With bond yields continuing to move lower, investors are now adjusting to the new reality of risk adjusted returns.

UK investment bank and financial services company, Barclays PLC, has launched an Australian dollar multi-tranche [5] year fixed coupon and floating rate note (FRN), and a [10] year fixed coupon note.

The newest additions to FIIG’s USD DirectBond list are two high yield (HY) opportunities issued by Peabody Energy Corporation. Since emerging from Chapter 11 in 2017, it issued a shorter dated 2022 and medium-term 2025 maturity bond. We prefer the 2025 bond offering an attractive yield over 6.00%pa.

The Australian bond market is faced with an insatiable demand currently, as bonds are maturing or being called, dwindling new issuance is limiting additional supply and there’s a thirst for yield. The liquidity and depth of the large USD high yield (HY) bond market is where savvy investors are looking to for opportunities, and for good reason, as we further explore.

The RBA has cut the overnight cash rate (OCR) to the lowest level in history. With more rate cuts on the way and bond prices likely to rally further, we believe it is time for investors to start adjusting their expectation to a lower yielding environment

Covenants are a key line of defence for bondholders, especially when investing in unrated or sub investment grade bonds. They act to align the interests of both the issuer and the bondholders and serve as a layer of protection well ahead of any potential payment default. Here we look at the different covenants and how they work.

The newest addition to FIIG’s USD DirectBond list is a high yield (HY) opportunity issued by Hunt Companies Inc., offering an attractive yield above 6.60%pa. The sub investment grade bond is an ideal inclusion in a well-diversified portfolio for wholesale investors.

The RBA has explicitly stated that it is open to cutting cash rates as early as June 2019, so what does this mean for fixed income investors?

Markets have sharply sold-off in response to the ongoing US-China trade stand-off, and renewed calls from both sides for additional tariffs on goods. However, defensive sectors such as Utilities and Infrastructure, which are less impacted, have performed well in comparison.