Listed Debt Securities Indices Performance Review

January 2017

January is the month for holidays

After a strong 2016 in terms of total investor returns, the ASX-listed debt securities market took a bit of a breather in January. This is perhaps not surprising, given that many investors would have been on holiday during the month, but it only takes a few transactions to move prices and there is a looming potential supply squeeze in 2017 to take into account.

See Combined & Individual Indices and  Franked and Unfranked Indices.

How real is the potential supply squeeze?

Without repeating what has been said previously, as expected, the $1.0 billion, Colonial Group subordinated notes (CNGHA) will not be replaced with a new issue of subordinated notes, when the existing notes are called on 31 March, but a new hybrid issue from either Colonial or Commonwealth Bank appears likely. And Tabcorp announced with the release of its interim results, that its subordinated notes (TAHHB) will not be replaced when the notes are called on March 22.

More such announcements will be coming during the year. Let’s hope new issuers will step-up to replace those that are leaving.

As it was, the Australia Ratings Combined index of ASX-listed debt securities increased by just 0.10% over the month of January. The index increased by 1.83% in December but this performance owes as much to many issues going ex-distribution, as it does to price increases over the month.

Only one issue went ex-distribution in January, this being the Australian Unity simple corporate bonds (AYUHB). This, of course saw the price of the bonds decline after the ex-distribution date and the Tattersalls (TTSHA) bonds also experienced some price weakness after becoming very expensive in December, as our relative value analysis at the time revealed.

Thus the Green index fell by more than 1% over January.

The remaining indices experienced small increases over the month as security prices generally moved higher, albeit slowly.

Chart 1: Listed Debt Securities Performance - Combined excluding the Unfranked and Franked Indices

Source: ADCM Services, Ord Minnett

Debt Securities’ Level of Complexity (PCI):
Green - simple; Blue – relatively simple; Yellow – complex; Orange – more complex; Red – very complex

The Crown Resorts subordinated notes (CWNHA and CWNHB) are continuing to experience a price recovery that allowed the Yellow index to show the strongest increase over the month of 0.5%.

The CWNHA notes ended January at $102.25, up from $100.77 at the end of December. The price of the notes was last above $100.00 at the end of November 2015.

The improvement in the price of CWNHB notes is less notable, finishing January at $94.20, just a $0.25 increase over the month.

The Orange index increased by 0.20% over the month and the Red index by a more modest 0.10%. The probability of more issuance into these two indices over 2017 is moderate to high, thus placing some constraint on prices that are already stretched.

The average price of securities in the Orange index is $103.12, and among the constituents of the Red index, the average price is $102.40. Only three of the latter were marked at less than face value.

The increases seen in the Unfranked and Franked indices of 0.36% and 0.10%, reflect the generally stronger price performance of lower risk securities over those of higher risk.


Chart 2: Franked and Unfranked Indices

Source: ADCM Services, Ord Minnett


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