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12 May 2022

Week in Review

  • The Reserve Bank of Australia hiked the official cash rate by 25bps last week, which was 10 points more than analysts had estimated. Yields spiked on the announcement with the 3 year Australian Government Bond yield passing through 3% for the first time since 2015.
  • Hawkish central banks in the US and UK also raised rates last week, with the US Federal Reserve lifting by 50bps to 1% and the Bank of England lifting by 25bps to 1%. Both moves were priced in by the market.

Chart of the Week: Rising living cost and interest rates drive consumer sentiment lower

Australia’s consumer confidence index fell 5.6% from a month ago to 90.4. The weak sentiment was linked to rising living cost and interest rates.

Source: Bloomberg

SocGen Q1 2022 Results

SocGen’s strong Q1 2022 results support our high conviction in the AUD AT1 debt. We see the sale of its Russian banking and insurance subsidiaries at a relatively low cost as a positive step and should remove a negative overhang on the credit.

So far this year, SocGen’s (Ba2) AUD AT1 securities have underperformed both the BNP (BBB-/Ba1) and UBS (BB/Baa3) AUD AT1 securities. However, we believe the risk profile amongst these three banking institutions are not too dissimilar. Thus, the 1% difference in yield between SocGen and BNP/UBS looks mispriced and the bonds have scope to tighten versus peers.

Credit Opinion: New Issue - Police & Nurses Wholesale Capital Note

Police & Nurses (P&N) are looking to issue a new wholesale capital note. P&N Limited (the issuer) has an S&P rating of BBB/Positive and we believe the credit is well positioned in the BBB category. The issue will not be rated. However, given the structure, subordination, discretionary distributions, and perpetual nature, this security would sit somewhere in the BB space.

We believe the capital note should price around the 5.75% over 3m BBSW area for a 5-year first call. Based on current 5y ASW, the yield to maturity (%) would equate to c.9.35% (this is on a franked basis).

Thought Piece: With Cash Rates Increasing, It Pays to Shop Around

With the RBA raising rates for the first time in a decade, there has been significantly more attractive Term Deposit rates emerging.

IAM looks at the consequences of rate hikes for investors and Term Deposits.

Most Traded

The table below outlines our most frequently traded issues over the past week.

Issuer Rating Coupon Call/Maturity Yield
Heartland Au Grp Pty Ltd BBB- BBSW3M+2.750% 13-May-25 6.030%
QBE Insurance Group Ltd BBB BBSW3M+2.750% 25-Aug-26 5.514%
National Australia Bank BBBB- BBSW3M+3.750% 12-Dec-29 5.604%
Ausnet Services Holdings BBB- BBSW3M+3.100% 07-Oct-25 6.068%
Earlypay Ltd NR BBSW1M+6.250% 14-Apr-25 9.521%
McDonald’s Corp BBB+ 3.000% 08-Feb-24 3.499%
ASCF Managed Investment NR 9.000% 14-Sep-22 6.656%
Qube Holdings Ltd NR BBSW3M+3.900% 05-Oct-23 4.450%
Coburn Resources Pty Ltd NR 12.088% 20-Dec-23 9.596%
Transurban Qld Finance BBB 3.250% 07-May-31 5.634%

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