Skip to main content

SET, FORGET AND REALLY ENJOY LIFE WITH 5.59%pa^

ON INVESTMENT GRADE BONDS

The Floating Rate Tier 2 Model Portfolio

5.59% + 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 fixed 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

Incoming economic data over January further reinforced peak cash rate sentiment; inflation continues to show signs of moderation and retail sales were subdued for the month of December. Both equity and credit markets performed well, continuing the rally that began in November 2023.
Australian government bond yields remain elevated, with 10-year rates rangebound between 3.95% and 4.01% over the course of January. The Australian dollar came under pressure due to a combination of a less dovish tone from the Federal Reserve and weakening conditions out of the Chinese property sector.
In the US, there’d been murmurs of as many as five rate cuts throughout 2024. However, forecasts are now suggesting a slower pace of easing, and so throughout the latter part of January, yields bucked their downward trend, with markets eagerly awaiting a clear direction on what comes next.

Portfolio Update – January 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 Wholesale Investment Grade 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) 0.11
Average Life (Years) 3.64
Credit Duration (Years) 3.17
Yield to Maturity** 5.59%
Average Rating* BBB+

*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)

1.18%

5.14%

AusBond Composite Index (BACM0 Index)

0.21%

2.41%

AusBond Credit FRN Index (BAFRN0 Index)

0.44%

2.16%

Wholesale Investment Grade Portfolio

1.85%

4.13%

*Note inception of the Floating Rate Tier 2 model portfolio was 1 September 2023

Portfolio Commentary

The model portfolio returned 1.85% over the period. There were no relative value switches in the portfolio as existing positions are deemed most attractive. In the new issue market, only ANZ came to market with a new floating 10NC5 at +165bps margin over BBSW3M (6.3% coupon at issue) with first call in 2028.

Assumptions

  • Interim cashflows are reinvested.
  • Intra-period capital contribution is not accounted for.
  • Total return represents sum of price returns and coupon/income returns