January 2016

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It is often the case that safe-haven buying of bonds is dominated by purchases of government debt, with corporate debt, even top-grade debt, lagging behind. However, this was not the case in January and corporate bond spreads to government bond tightened a little as some corporate bond yields fell more than the equivalent Commonwealth benchmark while others kept pace with the change in Commonwealth yields. The is a departure from what is being seen in the US where Goldman Sachs says that spreads on “high yield” bonds are at levels only seen during recessions.

Issuers are mostly quite during January but this year they were making up for the time lost over the Christmas / New Year period. January turned out to be quite a busy month for corporate bond issuers beginning in the second week. Over AUD$15 billion of bonds were issued by domestic players and nearly AUD$3 billion of bonds were sold into the Kangaroo market.

corporate-bonds-jan16

The standout transactions were CBA’s $1.8 billion January 2021 FRN at BBSW + 115bps and ANZ’s $1.4 billion 2019 FRN issued at BBSW +88bps. Other issues of note were also from ANZ via its NZ branch, comprising one USD$750 million (AUD$1.069million) tranche at Treasurys + 115bps and one USD$500 million (AUD$0.713 million) tranche at Treasurys + 130bps.

Other deals were seen by Westpac, via its NZ branch, issuing CHF375 million February 2024 bonds at Swap + 150bps. The Swiss franc theme was then taken up by National Australia Bank which sold CHF300 million January 2023 bonds at Swap + 144bps and then by Macquarie Bank which sold CHF200 million February 2024 bonds.

Macquarie Bank then quickly followed up with a four tranche issue which turned out to be the largest aggregate issue of the month. Three fixed tranches and one floating tranche added up to USD$2.5 billion (AUD$3.6 billion) of bonds. Two of the tranches were for 3 year; one fixed and one floating. The other two comprised 5 year and ten year bonds.

CBA issued just over AUD$100 million worth of bonds in Brazilian real. They were 2019 bonds with a coupon of 1274bps. It then ended the month with two tranches of covered bonds worth a combined €1.250 billion (AUD$1.941 billion). Other offshore issuance saw Westpac issue two tranches of 1 year bonds into the US and UK markets; the US issue was worth USD$595 million ($AUD840 million) at Libor + 51bps and the UK issue was for £260m (AUD$523 million) at Libor +26.5bps.

Royal Bank of Canada, normally an issuer in the Kangaroo market, had its Sydney office sell $800 million July 2026 FRNs at BBSW + 128bps. The World Bank issued $1.15 billion worth of 5 year Kangaroo bonds sold in three tranches. European Investment Bank (EIB) also decided the timing was good and it issued $300 million worth. KfW Bankengruppe sold $500 million worth of 5 year bonds and EIB sold another $200 million of 5 year bonds late in the month.

bhp-yieldreport-jan16

The iTraxx CDS index ended 2015 at 123.6 and it steadily continued the rising trend which had begun in mid-November. The price of insuring corporate debt in general was being driven by increases in CDS prices for commodity-linked companies such as BHP, Rio, Woodside and Santos as the probability of default, small as it may be, rose as iron ore and oil prices plummeted. The index peaked at just over 150 shortly after the middle of the month but after rumours of a deal between the Russians and Saudis emerged in the oil markets the index eased back to finish the month at 140.5.

itraxx-yieldreport-jan16
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AUST CORPORATE BONDS

ISSUERMATURITYCOUPON
(%)
RATINGISSUE
SIZE ($m)
MONTH
HIGH
MONTH
LOW
CLOSING
YIELD
Δ MONTHΔ 2 MONTH
ANZ9-May-166.75AA-7752.512.432.48-0.02-0.01
Westpac9-May-166.75AA-6252.542.432.51-0.020.01
Transurban8-Jun-166.75A-2003.363.093.19-0.17-0.15
Stockland1-Jul-167.50A-03.123.033.03-0.07-0.09
Fonterra11-Jul-166.25A+02.962.862.90-0.06-0.02
Telstra2-Aug-167.00A02.672.582.62-0.05-0.04
Melb Airport25-Aug-167.00A-03.123.003.00-0.13-0.10
Mirvac Finance16-Sep-168.00BBB+03.313.203.20-0.10-0.09
Wesfarmers4-Nov-166.00A-5002.932.842.88-0.05-0.03
Westpac18-Nov-167.25AA-16952.612.512.55-0.06-0.02
Suncorp (CB)6-Dec-164.75N/A11002.742.622.66-0.06-0.08
CBA (CB)25-Jan-175.75N/A20002.602.502.53-0.07-0.04
Aust Post6-Feb-175.50AA02.852.722.75-0.10-0.11
Westpac (CB)6-Feb-175.75N/A17002.602.492.53-0.08-0.04
NAB15-Feb-176.00AA-13002.652.542.58-0.07-0.07
Westpac20-Feb-176.00AA-7252.662.552.58-0.08-0.07
Crown18-Jul-175.75BBB3003.643.513.53-0.11-0.07
BP Cap5-Sep-174.50A03.153.043.06-0.09-0.10
BHP18-Oct-173.75A+10003.583.473.50-0.080.07
Telstra15-Nov-174.00A7502.972.842.86-0.11-0.09
HSBC16-Nov-174.25AA-2502.942.802.82-0.12-0.09
Westpac24-Jan-184.25AA-2502.822.692.73-0.09-0.08
CBA25-Jan-184.25AA-7502.832.702.73-0.10-0.09
NAB7-Mar-187.25AA-7002.832.702.73-0.10-0.10
ANZ17-Apr-184.25AA-2502.902.772.80-0.09-0.09
NAB23-May-184.00AA-3252.902.772.79-0.11-0.11
Syd Airport6-Jul-187.75BBB03.363.203.20-0.15-0.21
ANZ6-Nov-184.50AA-3003.012.872.89-0.12-0.11
Lendlease13-Nov-185.50BBB-2504.354.174.25-0.06-0.06
Telstra13-Nov-184.50A5003.132.982.98-0.15-0.13
Westpac25-Feb-194.50AA-11003.082.922.92-0.16-0.15
Woolworths21-Mar-196.00A-5003.853.723.78-0.07-0.06
Wesfarmers28-Mar-196.25A-5003.373.213.21-0.16-0.14
CBA24-Apr-194.25AA-5003.112.972.97-0.14-0.12
Bris Airport9-Jul-198.00BBB2003.593.393.39-0.19-0.18
Apple Inc28-Aug-192.85AA+4002.932.742.74-0.19-0.22
Stockland6-Sep-195.50A-1503.713.503.50-0.21-0.24
DBNGP11-Oct-196.00BBB-04.143.933.93-0.21-0.25
Westfield Retail23-Oct-195.00A03.783.573.57-0.21-0.17
CFS Retail19-Dec-195.00A03.413.223.22-0.19-0.21
CBA5-Feb-207.25AA-2503.253.043.04-0.20-0.20
Westpac11-Feb-207.25AA-3903.253.073.07-0.18-0.17
Wesfarmers12-Mar-204.75A-3503.603.433.43-0.17-0.13
Qantas27-Apr-206.50BB+2505.324.864.86-0.29-0.26
Lendlease13-May-206.00BBB-2254.694.494.49-0.19-0.19
Melb Airport4-Jun-205.00A-2253.593.363.36-0.23-0.22
Telstra15-Jul-207.75A5003.493.283.28-0.22-0.19
Perth Airport23-Jul-206.00BBB04.053.833.83-0.22-0.18
Mirvac Fin18-Sep-205.75BBB+2004.113.913.91-0.20-0.15
Bris Airport21-Oct-206.00BBB3503.923.683.68-0.24-0.21
Aust Post13-Nov-205.00AA03.293.093.09-0.20-0.22
Stockland25-Nov-208.25A-1603.933.683.68-0.25-0.24
Uni Sydney16-Apr-214.75Aa12003.212.983.00-0.21-0.19
Apple Inc28-Aug-223.70AA+11503.663.373.37-0.30-0.26
Melb Airport15-Sep-224.00A-2504.063.753.75-0.32-0.25
Telstra16-Sep-224.00A5003.913.573.57-0.34-0.30
CBA (AU)27-May-244.75AA-1253.613.283.28-0.32-0.26
NAB25-Jun-245.00AA-1504.043.723.72-0.33-0.26
Wells Fargo & Co.27-Aug-244.75A+2004.223.923.92-0.30-0.17
Uni Sydney28-Aug-253.75Aa12004.033.643.64-0.39-0.31
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