3 May 2022

• Australian headline CPI rose 5.1% YoY, beating analyst estimates of 4.6% and signalling the fastest inflation pace since 2009. The
  result intensifies pressure on the RBA to raise rates at today’s meeting, with the market pricing in a 15-basis point hike.
• The Australian 10yr Government Bond yield remained at levels not seen since 2015, closing the week at 3.125%.
• The difference between 1m BBSW and 3m BBSW is now currently sitting at 10-year highs as the market prices in RBA cash rate
  expectations.
• Nufarm 1H22 earnings update. Nufarm expects to report underlying EBITDA of between $320 – $340 million for the first half of 2022 (1H22). We see better risk return in the Nufarm 5% 2030s (USD) versus Nufarm perps (AUD) given the higher yield to call (YTC), rating (BB-/BB, S&P/Fitch vs B+, S&P) and position in the capital structure (senior unsecured vs subordinated).

Short-term interbank lending rates, known as BBSW are rapidly increasing in anticipation of the RBA increasing interest rates. Based on forward 3m BBSW rates, this trend looks set to continue. Holders of floating rate notes, including bank subordinated and hybrid bonds, will benefit with income linked to a higher 3m BBSW reference rate.

Source: BondAdviser and Bloomberg April 2022

In late March 2022, Pioneer acquired a AUD38.5mn debt portfolio accompanied by a AUD11.35mn equity issue.

Matthew Macreadie, Income Asset Management’s Credit Strategist provides a credit update and also discusses Pioneer’s forthcoming AUD45mn PDP deal with Collection House.

After several years of exceptionally low Term Deposit (TD) rates, forecasts for higher RBA Cash Rates combined with growing bank funding requirements and wholesale market funding conditions has led to more attractive TD rates emerging over recent weeks and months. TD rates of up to 3.35% for two years are now available from some banks.

While the market expects the cash rate to rise over the next 1-2yrs there is already now a material increase in rates priced into the yield curve.

The Hastings new bond issue is no doubt an attractive asset in an attractive sector, which has a NAIF facility parri-passu to the bond deal. The main risk is construction risk; however, bondholders are protected by numerous structural enhancements. The green transition will see increasing demand for permanent magnets which plays right into the company’s strength.

Hastings produces high-grade Mixed Rare Earth Carbonate (MREC) a key component in magnets. We see value at 12% YTM when compared against other mining related construction project vehicles (Jervois and Pembroke, in particular).

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

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