SET, FORGET AND REALLY ENJOY LIFE WITH 5.66%pa^
The Floating Rate Tier 2 Model Portfolio
5.66% + PA^
Yield to Maturity
(calculated based on Ask pricing with 75c of brokerage applied)
This Floating Rate Tier 2 Model portfolio has 10 AUD-denominated securities with equal weightings of 10% (in face value terms). It assumes an investment of A$5 million face value. If investors would like access to the underlying securities, then please talk to an IAM Sales Representative.
The portfolio will invest in a range of liquid, investment-grade floating tier 2 bonds from banks and insurers.
Coupon Type
FIXED
FLOATING
Bond Maturity
< 3 YEARS
3 - 5 YEARS
5+ YEARS
Sector
FINANCIAL
OTHER
Market Update
During March, January 2024 Australian CPI data was released, indicating a dip by 0.3%, maintaining an annual growth rate of 3.4%. Meanwhile, retail sales saw a positive uptick of 1.1% month-on-month. Central banks, including the RBA, BoE, and FOMC, held policy rates steady at their March meetings, with subtle hints of a hawkish stance indicating a potential prolonged period of elevated rates.
March witnessed resilience in both equity and credit markets, with the ASX 200 posting marginal gains and the Bloomberg Composite Credit Index (BACR0) up by 0.90%. In the US, the PCE deflator rose by 0.3% in January, buoyed by increased consumer incomes from government transfers. However, real consumer spending experienced a slight decrease, and the ISM showed weaker-than-expected performance. US CPI for February surpassed expectations at 3.2%, driven primarily by rising shelter costs. Despite manageable demand-side inflation, persistent supply-side pressures underscore the limited effectiveness of monetary tightening measures.
Primary markets experienced heightened activity throughout the month, with notable issuances including Aurizon Network Pty Ltd’s issuance of $350mn of 7.5-year Senior Unsecured notes at ASW + 200 basis points. Additionally, both HSBC Holdings and Macquarie Banking Corporation entered the market with 10NC5 Subordinated transactions, priced at SQ ASW + 230 and SQ ASW +195 respectively.
Portfolio Update – March 2024
Projected Cash Flows
The projected cash flows (2 year forward) is the forecasted income investors would receive from investing A$5 million face value in the Floating Rate Tier 2 Model Portfolio.
Cash flows are calculated based on next call for principal cash flow figures with the following applying:
- Cash flows for floating rate bonds assume a future rate of underlying index 3m BBSW for all coupon refixes.
| Interest Rate Duration (Years) | 0.12 |
| Average Life (Years) | 3.70 |
| Credit Duration (Years) | 3.21 |
| Yield to Maturity** | 5.66% |
| Average Rating* | A- |
*Average Rating is based on a linear basis
**Yield to maturity is calculated based on Ask pricing with 75c of brokerage applied
| Performance |
1M |
Since Inception |
|
ASX200 Index (AS51 Index) |
2.57% |
8.10% |
|
AusBond Composite Index (BACM0 Index) |
1.12% |
3.25% |
|
AusBond Credit FRN Index (BAFRN0 Index) |
0.50% |
3.22% |
|
Wholesale Investment Grade Portfolio |
0.44% |
5.34% |
*Note inception of the Floating Rate Tier 2 model portfolio was 1 September 2023
Portfolio Commentary
Performance was strong over the month at 0.44% across the broad suite of assets in the portfolio. However, floating rate assets did underperform fixed rate assets in general.
We made no changes to the floating rate tier 2 model portfolio over the month.
Assumptions
- Interim cashflows are reinvested.
- Intra-period capital contribution is not accounted for.
- Total return represents sum of price returns and coupon/income returns
