Investment Strategy

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.

The first four months of this year have seen corporate bonds rally strongly across the ratings spectrum. We believe that investors should consider using this rally to reduce exposure to CCC rated securities, which remain the most vulnerable to any correction.

One of the major four banks in Australia, National Australia Bank Limited (NAB), has announced its plan to potentially issue a new Australian dollar Tier 2 style bond. The 10 year bond, callable after 5 years, is expected to price competitively to where existing Tier 2 issues are currently trading.

ASX-listed data-centre provider, NextDC Limited (NextDC), has mandated NAB to arrange an increase to its AUD200m June 2022 floating rate notes.

As several bonds approach maturity or call dates over the coming few months, many investors could be exposing themselves to reinvestment risk and receiving lower returns by not reinvesting ahead of time. We look at the benefits of actively managing maturities and early redemptions to get the most out of bond portfolios.

Ausdrill Finance Pty Ltd, a wholly owned subsidiary of ASX listed Ausdrill Limited, has announced its intention to issue a new USD denominated senior unsecured bond. The timing and pricing of this bond have not yet been announced.

With uncertainty and volatility set to continue for some US high yield credits, now is the time to be reviewing and diversifying this part of portfolios. The recent recovery in price allows holders to reduce some positions and de-risk their USD high yield portfolios.

Downer Group Finance (Downer) has launched a new fixed coupon AUD issue, with an indicative coupon of [3.75]%, maturing in 2026. It has priced tighter than recent peers, which reflects the strong demand for investment grade bonds in the current market environment.

The recently announced Woolworths green bond has opened up a discussion within the FIIG client base on ethical bond investments. Here we take a look at what’s on offer in this space.

AAA rated senior tranches of Residential Mortgage Backed Securities (RMBS) provide superior return when compared to equivalent rated bonds and have the added benefit of natural risk reduction through amortisation.

This opportunity will appeal to clients who are comfortable with the credit quality of Liberty Financial as an issuer but are looking for yield and ratings upside.

As uncertainty over the economic future grows, we look at longer dated investment grade bonds, which can protect portfolios in a downturn. We also track the strong performance of these bonds since we last discussed this strategy.

Woolworths has announced its intention to issue a potential inaugural AUD Green bond. Woolworths operates over 3,000 retail stores in Australia and New Zealand, including more than 1,000 supermarkets. It also operates BWS and Dan Murphy’s liquor stores as well as the Big W retail chain.