Investment Strategy

Westpac’s USD denominated, investment grade Tier 2 bond is the newest addition to our USD DirectBond offering. This bond is fixed rate and available in USD10,000 minimums. It would appeal to clients wanting to improve credit quality of their USD investments.

Higher rated notes of RMBS transactions remain attractive investments. Here we look at the relative value of these securities and consider the factors influencing property prices.

Bendigo & Adelaide’s (BEN) new 2023 call Tier 2 floating rate note (FRN) was oversubscribed at issuance, and will have ongoing demand in the secondary market. The note is available at a margin above 3mBBSW+1.90%, offering a more attractive return compared to older issues.

Sprint has further upside with the T-Mobile merger looking more likely, and the downside limited by strong operations and other potential buyers of the company. Its recent price movement lower presents a more attractive entry point for investors.

Since DirectBonding Nufarm’s 2026 USD bond in August, we’ve continued to see attractive and relatively stable pricing, even during recent market volatility. We believe the company has future relevance with increasing global growth and presents an opportunistic buy.

The new 10 year, non-call 5 year Tier 2 issuance from BEN is expected to meet strong demand as funds are invested ahead of year end. Its issue margin is wider compared to recent issuance, in line with moves in the sub debt space.

The yield of a fixed rate corporate bond is made up of two components, a base interest rate and a credit spread. Higher yield is generally commensurate with high risk. In this note we explore the components of yield and highlight some bonds that we think are good relative value across the yield spectrum.

AMP’s recent Tier 2 issuance was priced attractively when it launched and remains so as it starts trading in the secondary market. At a spread greater than 3mBBSW+2.30% it offers strong relative value compared to peers, and in our view is an opportunistic buy.

Following Sprint’s improving 3Q18 results, our independent credit research provider, CreditSights, reaffirmed its Outperform recommendation. With the T-Mobile merger looking more likely, there is further price appreciation likely and presents an opportunistic entry point.

CBA announced a new hybrid last week. While the yield is attractive it’s worth noting hybrids are complex securities and do not offer the same investor protection as bonds. Here we assess the differences.

We have created three new model portfolios to help clients achieve their risk and return objective. The portfolios offer differing yields and levels of risk, and demonstrate investment options for clients.

Hospital Corporation of America (HCA) reported strong 3Q18 results, beating initial consensus. Our pick is the HCA 2025 bond, which offers a high rated exposure credit and an attractive yield over 4.50%pa.

In a week of positive news for Barminco the Ausdrill merger was approved, its ratings were upgraded by three notches and its existing contracts were extended. All of these developments have substantially improved Barminco’s credit quality, making this bond a fantastic alpha generating investment option in the current investment environment.

The new 5.5 year and 10 year AUD issuance from Lendlease is expected to meet strong interest from the market. At an indicative yield of 4.35% and 5.20%, respectively, the investment grade bonds offer attractive relative value when compared to peers with similar maturities.

In a week of positive news for Barminco the Ausdrill merger was approved and its existing contracts were extended. Both of these have substantially improved Barminco’s credit quality, making this bond a fantastic alpha generating investment option in the current investment environment.

Harvey 2018-1 is Credit Union Australia's (CUA) first transaction for 2018. It is a prime RMBS supported by a good quality pool of collateral.

Firstmac 2018.3 is the third term out transaction by Firstmac in 2018. It is a prime RMBS transaction supported by a good quality pol of collateral.

Recent volatility in markets had many investors adding more Investment Grade (IG) bonds to their portfolios. Our IG picks in USD are BHP Billiton 2025c, QBE 2026c, Adani Abbott Point Terminal 2022 and NCIG senior 2027. They offer investors exposure to better rated securities without sacrificing yield.

Following a Telco update from our independent credit research provider (ICRP), we have highlighted our recommendations in the sector. Sprint remains a speculative buy in the sector, AT&T a hold, and Frontier and Telstra good exit targets.