Skip to main content

19 May 2022

Week in Review

  • U.S. CPI data surprised on the upside, showing inflation slowed over the month – albeit by less than analysts had estimated. The report roiled financial markets and raised the odds of the Federal Reserve hiking interest rates by half a point at the next three meetings.
  • Domestic markets were mixed, with volatile equities and the AUD hitting a new 52-week low. The Aussie 10yr Government bond yield grinded lower over the week, closing down 16bps.

Chart of the Week: Bloomberg Global Aggregate Index Returns Since 1991

Global bonds produced the worst monthly loss in history, falling 5.48% over April 2022 – the most in its 30+ year history. Domestically, local bonds suffered relatively less. Markets are repricing fast and a healthy sell-off has made duration more attractive for investors.

Source: BondAdviser, Bloomberg

Westpac Banking Corporation AUD 3-Year Covered Bond/5-Year Senior Unsecured

Westpac issued a 5 year fixed/floating senior unsecured bond. However, it is the 3 year fixed/floating covered bond that looks very appealing from a risk/return perspective.

Westpac is one of the first Australian banks to reissue a covered bond after this market being dormant for some time. Historically, covered bonds have priced much tighter than senior unsecured – normally around 70-80% of the total spread of senior unsecured bonds.

Credit Update: MME Horizon Warehouse Trust (April 2022)

The RBA has started normalising the cash rate by lifting it by 25bp to 35bp, and more hikes are yet to come. The market is currently expecting approximately a 2.8% cash rate by the end of this year. The 1m BBSW (for which the MME coupons are referenced against) now stands at 0.34%. Thus, investors can expect an uptick in income received over the coming months as base rates continue to rise. However, for April 2022, the 1m BBSW for the payment period was only 0.0083%.

The A notes have 20% subordination, B1 notes 10% subordination, and B2 notes 5% subordination. Given the observed credit improvement, we believe the class A notes should be a core holding across an investors fixed income portfolio − especially considering more hikes are expected to come.

Credit Opinion: Clearview Wholesale Subordinated Notes Update

These notes have performed well and we would advise investors to consider redeploying capital into other safer risk/return opportunities which do not have the overriding negative takeover risk. The discount margin has narrowed following the widening that occurred in late 2021, providing a better exit point for investors.

After the recent FY21 result release late August 2021, the Board has placed a ‘For Sale’ sign up on the group as part of a strategy review. This includes a potential change of control transaction. The change of direction has been somewhat motivated by Crestone Capital Partners (private equity), who own 17% of the shareholder base.

Most Traded

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

Issuer Rating Coupon Call/Maturity Yield
Insurance Australia BBB BBSW3M+2.100% 17-Jun-24 5.020%
Societe Generale Ba2 ADSWAP5+4.036% 12-Sep-24 6.392%
Lendlease Finance BBB- 3.400% 29-Jul-27 5.550%
Earlypay NR BBSW1M+6.250% 14-Apr-25 9.368%
Commonwealth Bank A- BBSW3M+1.900% 14-Apr-27 5.000%
Mineral Resources BB 8.000% 01-Nov-24 8.150%
North Queensland BB+ 4.450% 15-Dec-22 11.790%
Mime Petroleum NR 10.250% 10-May-24 10.875%
Commonwealth Bank A- BBSW3M+1.900% 14-Apr-27 5.580%
Bendigo and Adelaide Bank A- 1.700% 06-Sep-24 3.879%

To discuss investment opportunities, please call

Contact Us

1300 784 132