Listed Debt Securities Indices Performance Review

October 2016 

Steady as she goes, almost

The weighted average yield to call on the Australia Ratings’ Combined index of listed debt securities was virtually unchanged at the end of October, from where it was at the end of September. The weighted average yield to call was 5.78% per annum at the end of October, compared with 5.77% at the end of September.

The index itself however increased by 1.18% over the month, as the Australian Unity Series B Bonds (AYUHB) went ex-distribution.

See Combined & Individual Indices, Weighted Average Yield Indices and  Franked and Unfranked Indices.

Based on the Combined index performance, one might form the impression that little happened in October. And for the most part this would be a fairly accurate impression.

No new securities entered the Australia Ratings family of indices, and none left. And, as just noted, only one security went ex-distribution.

However, the performance of individual indices shows that most securities increased in value after the decline observed in September, with two notable exceptions.

The Yellow index fell by almost 1% over the month as the weighted average yield to call of the index jumped to 7.95% per annum, from 7.15% a month earlier. The reason for these movements is another bout of price weakness in the Crown Resorts subordinated notes (CWNHA and CWNHB).

A noticeable sell-off occurred after the implications of the arrest of Crown employees in China sank in. The notes did not finish the month at the lowest prices seen after the news broke, but price recovery from the low points has been weak and could yet reverse on any reappraisal of the situation.

Chart 1: Listed Debt Securities - Combined & Individual Indices October Composite Index Performance

Source: ADCM Services, Ord Minnett

Chart 2:  Listed Debt Securities Indices - Weighted Average Yield
October Listed Debt Securities Weighted Average Yield

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 best performing index was the Red index (very complex debt securities), which through price increases alone returned 1.45% for the month. Nevertheless, the weighted average yield to call for the index only fell to 5.93% per annum, from 5.97%.

The Australian Unity distribution allowed the Green index (simple debt securities) to increase by 0.7% over the month. While slight price declines for the securities in the index saw the weighted average yield to call increase to 3.97%, from 3.87%.

The Orange index (more complex debt securities) managed a 0.51% increase over October, while the weighted average yield to call fell fractionally to 4.29% per annum, from 4.31%.

Calculation of the Blue index (relatively simple debt securities) has been halted as no securities qualify for inclusion, at the present time.

The performance of the Franked index was largely in line with that of the Red index. The franked index includes the constituents of the Red index and a few of the Orange index.

The Franked index returned 1.40% for the month, compared with the 1.45% increase seen in the Red index.

The Unfranked index includes the remaining constituents of the Orange index and those of the Green and Yellow indices. The decline in the value of the Yellow index (complex debt securities) ensured the performance of the Unfranked index was flat over the month.

Chart 3: Franked and Unfranked Indices Listed Debt Securities Franked & Unfranked Index 

Source: ADCM Services, Ord Minnett




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