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Listed Debt Securities Indices Performance Review


September 2016

September - a month of consolidation with prices down and yields up

There are a number of factors that could have impacted on the performance of the Australia Ratings’ listed debt securities indices over the month of September. These factors include:

  • changes in index composition
  • the volume of securities going ex-distribution
  • new issues coming to market, and
  • waning investor risk appetite.

The combination of these factors resulted in the Combined index falling by 0.32% over the month, to 103.49 points. While the weighted average yield to call for index constituents rose to by 27bps to 5.77% per annum.

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

Two securities left the index and one joined

The ANZPC hybrid notes left the index, as did the CTXHA subordinated notes. Both will reach their call dates in September next year, and therefore under the index construction rules, are excluded for being within less than 12 months to their call dates. The addition is the ANZPG hybrid notes, which commenced trading on the ASX during the last week of the month.

The ANZPC hybrid notes left the Combined index and the Orange index (more complex debt securities) with an index value of $105.83. The CTXHA subordinated notes left the Combined index and the Yellow index (complex deb securities) with an index value of $114.09.

Both of these departures had a depressing effect on the relevant indices. Entry of the ANZPG hybrid notes to the Combined and the Red indices (very complex debt securities), with an index value of $100.69 did not ameliorate this.

Securities going ex-distribution

Some 70% of index constituents went ex-distribution during September, which saw security prices subsequently fall. But in many cases the size of the price fall was greater than the value of the distribution per security. 

New market issues and sign of investors’ risk appetite

The opportunity to buy into the ANZPG issue may have been a contributing factor, but with a scale back of 45% of the $1.3 billion of orders received from institutional investors and brokers in the final allocation of the notes, prices should rally this month.

The bookbuild in early September for the Qube subordinated notes (QUBHA) may have also contributed to softer prices over September. The bookbuild saw the issue size increased to $300 million from $200 million. And then, there just maybe a slight pull-back of underway after prices rallied hard in July and August.

Chart 1: Listed Debt Securities - Combined & Individual Indices


Source: ADCM Services, Ord Minnett

Chart 2: Listed Debt Securities Indices - 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 Green index (simple securities) was the best performer for the month, increasing by 0.18%, despite distributions paid. In fact, we should say because of the distributions paid, as these are counted in accumulation indices.

Security prices fell ex-distribution but not to a level that would have been fully reflective of the value of the distributions, thereby also allowing the weighted average yield of the index to increase by 9bps to 3.87% per annum.

The Red index (very complex securities) was the next best performer but it lost 0.02% and saw its weighted average yield increase by 19bps to 5.97% per annum. The orange index (more complex securities) fell by 0.18%, affected by the loss of the ANZPC hybrid notes. The Yellow index lost a sizeable 1.65%.

The decline of the Yellow index (complex securities) is not solely attributable to the departure of the CTXHA notes.

Price weakness has again impacted on the Crown Resorts (CWNHB) subordinated notes. The notes ended August marked at $90.00 but fell to $87.50 after allowing for a distribution of just $1.52 in September.

The price of the CWNHA notes was virtually unchanged over the month, after an even larger distribution. Thus, the cause of the price weakness in the CWNHB notes is not clear.

The weighted average yields on the Orange and Yellow indices increased by 25bps and 103bps to 4.31% and 7.15% per annum, respectively.

Franked and Unfranked Indices fell

Chart 3: Franked and Unfranked Indices


Both the franked and unfranked indices fell over the month: the former, by 0.64% and the latter, by a more moderate, 0.25%.

 

Source: ADCM Services, Ord Minnett

 

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