The over-the-counter bond market has been busy over the last week with two big banks issuing subordinated debt along with other corporate issues, a commercial asset backed security (ABS) issue from Humm and a credit card ABS from Latitude.
Westpac and Macquarie were both in the market, raising Tier 2 subordinated debt over the last week.
Westpac raised $1.5 billion in a 15-year, non-call 10 (15NC10) fixed rate issue with a 5.815% coupon.
Macquarie raised $1.25 billion in a dual tranche (10.5NC5.5) issue. Price guidance was:
- Floating rate tranche 3-month BBSW + 200bps
- Fixed to floating tranche 220bps over semi-quarterly swap
Final pricing was tighter, as we’ve come to expect:
- Floating rate tranche 3-month BBSW + 185bps
- Fixed to floating tranche 195bps over semi-quarterly swap, that is a 6.1456% coupon
Other new issues include:
- A five-year, senior unsecured bond from Goodman Group, which raised $500m with a 4.742% coupon.
- Avanti Finance launched a 4.4-year senior secured bond seeking $100m with price guidance of 3-month BBSW +475bps.
- Contact Energy raised $400m in a 6.5-year senior unsecured green bond with a 5.414% coupon or 157bps over semi quarterly swap.
- Transurban Queensland launched a 7.25-year senior secured fixed rate deal with price guidance of 170bps over semi quarterly swap.
In contrast to our strong domestic market, weak demand in an auction for a new US government bond, saw the 30-year US government bond yield spike to 5.096%.
Markets don’t like uncertainty, and Trump’s tariff policies and tax cuts have investors rethinking their US exposure. With a declining US dollar and deficits remaining above 6% of GDP, major asset managers are re-allocating capital to higher-yielding European and Asian sovereign debt. The concern is that to keep borrowing, yields may have to rise further.
Robert Almeida from MFS Investment Management says surging US government bond yields are an uncertainty premium. He believes borrowing costs for companies and consumers may remain elevated even if the US Fed cuts rates this year.
The word ‘uncertain’ has spiked in US Fed papers since Trump was elected President last year. Mitch Reznick, from Federated Hermes says that uncertainty could be positive for credit markets as companies hang onto cash, instead of investing, reducing credit risk. He also outlines how they have been positioning their portfolios including favoring higher quality companies.
In an exciting development, online investment and trading platform, Stake has launched an actively managed fixed income fund. Minimum investment is just $500 with small minimum additions of $10. It has an automated reinvestment feature – fantastic for young, new investors.
Thomas Poullaouec from T. Rowe Price is back with his popular monthly global asset allocation note.
Finally, the green bond market is set to hit record issuance of US$600 billion according to Johann Ple of AXA IM
Have a great week!
