Switching into Pacific National Hybrid for Enhanced Yield

February 2025

By Peter Knespal

Pacific National’s BBSW +3.85% (AU3FN0094504, callable 11 Nov 2029) is currently offered at around 102, providing a ~7.4% yield to call with an 8%+ coupon. This presents a compelling opportunity for investors seeking high-yielding hybrid exposure while optimising portfolio positioning by switching from lower-yielding alternatives.

Key Highlights

Attractive Yield & Coupon: Offers a higher trading margin than many investment-grade alternatives.
Credit Profile: Rated BB (hybrid) vs. BBB- (senior debt).
Portfolio Optimisation: Enhances yield while locking in profits from outperforming holdings.

Switch Recommendations

From Ampol BBSW +3.40% (Mar 2027 call) – ISIN: AU3FN0064739

Locks in a profit.
Improves coupon rate and trading margin by approximately 116 bps.
Slight step down in credit rating (BBB- → BB).

From Liberty Curve Holdings

Existing holdings have realised substantial profits, with most Liberty lines trading above $105.
Reallocating from a senior BBB-rated credit to a hybrid BB-rated Pacific National.
Enhances income and trading margin while securing gains.

Risks to Consider

Credit Risk: Moving from investment grade (BBB-) to high yield (BB).
Liquidity Considerations: Switching into a hybrid bond may carry different liquidity dynamics.
Market Volatility: Credit spreads and funding conditions could impact relative value.

Switching into Pacific National Hybrid (BB, callable Nov 2029) provides a superior yield profile, allowing investors to capture profits from outperforming holdings while increasing income and trading margin. Given IAM clients’ appetite for BB-rated hybrids, this trade aligns well with portfolio optimisation strategies.

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