Listed Debt Securities Indices Performance Review

November 2016 

Increasing prices and yield to call

Just over 20% of the constituents of the Australia Ratings listed debt securities indices went ex-distribution during the month of November, but the value of the distributions was more than offset by price increases for individual notes and, at the same time yield to call increased by around 20bps across most indices.

The latter move seems contradictory but can be explained by the calculation of yield to call being based on the current swap rate for the remaining period to the call date of individual securities. The securities are all floating rate and not fixed rate, and therefore increases in interest rates will not adversely impact the price of the securities.

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

For the Combined index, yield to call stood at 5.97% per annum, up from 5.78% at the end of October. The Yellow index offers the highest yield to call at 8.02%, reflecting the continuing discounting of the Crown Resorts’ subordinated notes, CWNHA and CWNHB.

Chart 1 below shows that yield to call has been increasing since the end of August and this trend is expected to persist, albeit at a modest pace.

Chart 1: 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 Combined index returned 0.57% for the month of November, or 7.01% on an annualised basis. This return was driven by the performance of the Red index, which comprises Additional Tier 1 capital issues, and the Yellow index, reflecting some modest price appreciation in the CWNHA and CWNHB notes.

The CWNHA notes increased to $98.50 from $97.80 over the month and the CWNHB notes increased in price to $86.75 from $85.40. The prices increases accounted for most of the 0.88% (11.14% annualised) return from the Yellow index, over November.

The Red index increased by 0.61% over the month, or 7.56% on an annualised basis. Fewer than 20% of the constituents of this index went ex-distribution during the month.

The performance of the Green and Orange indices was more modest, returning 0.26% (3.13% annualised) and 0.25% (3.06% annualised), respectively.

No notes in the Green index went ex-distribution and the prices of the Tatts (TTSHA) and IMF (IMFHA) senior notes appreciated by 0.70% and 1.46%, respectively. The ex-distribution prices of constituents in the Orange index were generally lower but this was offset by price increases among the remainder.

Calculation of the Blue index continues to be suspended, as no securities qualify for inclusion, at the present time.

The performance of the above mentioned indices is presented in Chart 2 below.

Chart 2: Listed Debt Securities Indices - Composite & Individual Indices


Source: ADCM Services, Ord Minnett

Chart 3 shows that the Franked index performed strongly, while the performance of the Unfranked index was a little more subdued. The Franked index returned 0.67% (8.14% annualised) over the month, and the Unfranked index returned 0.46% (5.61% annulised).

The franked index includes the constituents of the Red index and a few of the Orange index. The Unfranked index includes the remaining constituents of the Orange index and those of the Green and Yellow indices.

Chart 3: Franked and Unfranked Indices

Source: ADCM Services, Ord Minnett


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