Pacific National Finance Pty Ltd

March 2025

By Cameron Window

Income of 7.6% and Yield to Call of 7.3%

This, in my opinion, is a great value bond in our secondary market. If you don’t own it, consider adding it to your portfolio.

So many portfolios are dominated by financials, so this has the added benefit of providing some greater diversity across industries.

Pacific National are an investment-grade issuer, with their Senior bonds rated BBB-. However, as this bond is subordinated within their capital stack, it’s rated two notches lower, at BB flat. This of course means that there’s a bit more juice in the return to the investor, so provided you feel comfortable with Pacific National on the whole, there’s a handsome pick up on offer…

The ‘yield to call’ in Dec 2029 of 7.30% represents a margin of 3.45% over the corresponding swap rate, and this is a good 1.5-2% wider than subordinated bonds that sit in the lower end of the investment-grade range. So, if the investment grade yields of 5.3 – 5.8% are starting to look a little skinny, and you don’t wish to add to your unrated/HY positions at this juncture, then this offer from Pacific National might be a good middle ground.

The high fixed rate coupon of 7.75% makes this a great way to future proof your income. Meanwhile, the underlying market value should outperform, as rates fall and the term to call shortens.

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